BofA Warns: Diverging Central Banks to Weaken AUD/NZD

Bank of America (BofA) is advising clients to sell the Australian dollar against the New Zealand dollar, citing expected divergence in central bank policy cycles and structural migration dynamics.

The firm's economists predict that the Reserve Bank of Australia will keep interest rates unchanged until the second half of 2027, whereas the Reserve Bank of New Zealand is forecast to raise rates twice more in 2026.

This expected divergence in monetary policies between the two countries is seen as a headwind for the AUD/NZD currency pair. Additionally, BofA views migration channels as another potential medium-term challenge for the pair, with widening tax-rate differentials potentially triggering a reversal of recent migration dynamics between Australia and New Zealand.