The flightless bird is soaring – but history shows it will eventually fall back down to earth….

Over the last 30 years the range for the New Zealand dollar versus the Australian dollar has been about 1.05 to about 1.40, give or take a little. This very broad range has traded up and down every 5 years or so.

The recent strength of the Kiwi has pushed the relationship almost over the edge, with the Aussie being talked down relentlessly and the RBA backing that up with rate cuts, and this morning the AUD/NZD touched 1.0350, it’s all time low.

The RBNZ do not have that interest rate tool at their disposal. Recent NZ retail sales data was strong, and even though the RBNZ governor says that his dollar should be 10% lower, he will not be cutting rates any time soon, having only just shifted to a neutral policy stance a few weeks ago.

Currency values are not just about interest rates though – There is really no good reason for this AUD/NZD relationship to break down completely. Economies go up and they go down, but these two countries are inextricably linked by their geography, so although short-term factors can push currency markets to extremes, I think it is time to take a longer term view by buying AUD and selling NZD around current levels.

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