Some AUD/NZD views (target, stop)
Scanning across some notes, views for the AUD against the kiwi vary.
In brief ...
- We continue to look for another 25bps rate cut from the Reserve Bank of Australia - most likely in February - and still believe unconventional easing is more likely than not"
- short positions in New Zealand dollar along with interest-rate differentials supports a lower AUD/NZD
- targeting 1.0400 (stop at 1.075)
- NZD appears to be a bigger beneficiary of year-end buying than the AUD
- AUD/NZD cross has ended the holiday period higher only nine times in the last three decades
- We still like AUD/NZD as a relative economic play, however seasonal strength in the NZD is reason to hold off entering any long positions until early next year.
- AUD/NZD fair value has fallen, WPAC expect it to fall further
- yield spreads lower (RBNZ relatively less dovish than RBA)
- Commodity spreads lower (iron ore prices down relative to dairy prices)
- The fall in fair value means the cross is not as extremely undervalued as it was … but it does remain undervalued. We attribute the undervaluation of the past 18 months to the US-China trade war. Recent thawing in that relationship has seen the undervaluation shrink slightly, but we see scope for it to shrink even further, taking the cross to around 1.10 over the next few months. We see last week's pullback, should it extend to 1.0550, as an opportunity to buy the cross for a reversion towards fair value."