AUDNZD: more room for downside

Today's FX chart shows the interest rate spread of Australia vs. New Zealand after the Asian session saw weak Australia retail sales and China announcing that a massive new stimulus is not going to happen (some stimulus will, just not on the scale of 2009). Weak precious metals prices are no tonic for the Aussie either. The recent runup to above 1.3000 in AUDNZD coincided with the worst period of the move in risk aversion, as there may be a slight penalty on the kiwi due to its thinner liquidity in times of market stress, but interest rate spreads suggest that even with the current correction lower in AUDNZD to below 1.2900 today, there is room for a further decline, as the Aussie rate advantage is now at its lowest in about two years (the blue lines below). When the spreads were last at these levels back in 2010, AUDNZD was trading around 1.2300.