Currency analysts remains bearish on AUD/NZD near 1.20, arguing the RBNZ should tighten further than the RBA despite lingering Australian hike risk.
The Australian Dollar to New Zealand Dollar (AUD/NZD) exchange rate hovered around 1.2000 on Monday, almost exactly where Bank of America sees the policy divergence between the two central banks becoming important.
AUD/NZD traded between roughly 1.1980 and 1.2015 during the latest session, settling around 1.1999 after a choppy but ultimately modest advance.
BofA came away from meetings with Australian and New Zealand investors convinced that another RBA hike remains a genuine risk, but not enough to overturn its bearish view on the cross.
“The RBNZ is expected to continue hiking although clients differ on the number of hikes,” strategists Isabel Hartstein and Oliver Levingston said.
“We remain bearish AUD/NZD.”
The bank’s preferred expression is an AUD/NZD put spread with strikes at 1.1960 and 1.1850.
Those are option strikes rather than conventional spot targets, although BofA’s broader forecast deck points in the same direction, with AUD/NZD at 1.20 for Q4 2026 and 1.18 in Q1 and Q2 2027.
AUD/NZD briefly climbed above 1.2010 before easing back to 1.20, leaving spot only modestly above the upper strike in BofA’s bearish options structure.
AUD/NZD Outlook: Which Central Bank Tightens More?
The New Zealand side drives much of the call.
“In New Zealand, clients expect the RBNZ to continue hiking in order to return the OCR to neutral,” BofA said, although estimates of that neutral level varied between roughly 3% and 3.5%.
The RBNZ raised the Official Cash Rate to 2.50% in July and explicitly said that “further OCR increases appear likely at upcoming meetings”, although their timing remains uncertain.
Its next scheduled decision is on 2 September.
BofA’s conclusion is therefore relatively simple: “Given the RBNZ is likely to tighten further than the RBA, we still like being short AUD/NZD.”
Australia is the obvious risk to that trade.
Clients described the RBA’s latest decision as a “deliberately hawkish hold”, with concern that another insurance hike may still be required if this week’s inflation data surprise on the upside.
The July labour report complicated that argument after unemployment rose to 4.5%, its highest in almost five years, while employment unexpectedly fell by 15,800.
There is also a longer-term Australian wildcard in the AI investment boom.
BofA found clients increasingly interested in Australia’s pipeline of data-centre investment, which could support capital spending and employment while offsetting some weakness in housing.
The bank is cautious about converting that directly into a bullish currency call, however, noting that even the substantial copper rally has generated a relatively muted AUD response.
That makes this a useful counterpoint to our recent MUFG AUD/NZD analysis, which saw more scope for Australia’s yield advantage to support the Aussie.
The banks disagree on the relative policy story, and the next couple of weeks should help settle it.
A hotter Australian CPI print would immediately challenge BofA’s bearish position, while another forceful RBNZ tightening signal would put 1.1960 and then 1.1850 firmly back into view.
