AUD/NZD: ABN-AMRO says monetary divergence between RBA and RBNZ should drive pair to 1.07 during next few weeks

The ABN-AMRO bank is bullish on the AUD/NZD:

"The AUD outperformed the NZD last week as markets now expect the RBA to leave its monetary policy unchanged until the end of the year while a further decline of 0.25% is expected on the RBNZ's side. Governor Lowe (RBA) said he's not stradling as far as inflation is concerned and is tolerating its variability. It is appropriate and inevitable. This has decreased the rate cut expectations for the coming months even though inflation remains below the 2%-3% target. On the other hand, the RBNZ reiterated that further monetary easing will be needed to ensure that inflation remains in line with the target.

As this monetary divergence is not fully integrated into the price, it is likely that the AUD/NZD will continue to rise towards 1.07 over the coming weeks," says ABN-AMRO.