The AUD/NZD cross continues to maintain positive momentum. We touched highs from last week close to 1.0575 earlier. Dips back towards the 1.0500 level have also been supported in recent sessions.

• NZ sentiment readings across both the consumer and business segments have been very weak. The first chart below plots the differential between the AU NAB business conditions index and the NZ ANZ business own activity indicator.
• Note the latest reading assumes no change in NAB business conditions (last at +20, while the ANZ NZ reading fell to -25.6 for Dec earlier this week). The AUD/NZD cross should be considerably higher based off this relationship.

Fig 1: AUD/NZD Versus Relative AU-NZ Business Conditions

Source: MNI - Market News/Bloomberg

• The RBNZ's intent on bringing down inflation, even at the expense of growth, which is driving multi-year wides in the respective central bank rate policy outlooks, is clearly working the other way and weighing on AUD/NZD. It's also noteworthy, the differentials in consumer sentiment readings are much lower.
• Still, this week has seen yield momentum shift back in AUD's favor. Arguably though a more significant shift will materialize when the RBNZ sees evidence of inflation cooling and we get closer to peak rates in NZ.
• The second chart below shows the cross still remains in a bearish downtrend channel. We can still correct higher from here, but arguably A$ bulls will be encouraged if we see a break above the 20-day EMA (1.0640 currently), which also roughly coincides with the top-side of the downtrend channel.

Fig 2: AUD/NZD Downtrend Channel

Source: MNI - Market News/Bloomberg