Westpac is out with its top FX trades for Q1 2015 where buying AUD/NZD is one of the core trades on Westpac’s list.
Rationale:
-We expect Q1 2015 to present a buying opportunity in AUD/ NZD. The 1.0500 area which was last seen in January is an attractive entry level, having been a cycle low three times since 1985 (when the NZD floated). We regard January’s low as probably the fourth cycle low.
-The AU-NZ 2yr swap spread, currently at -136bp, could easily fall further to the 155bp low seen in July (see middle chart). A falling AU-NZ interest rate spread will push the cross lower and deliver a buying opportunity. During 2015, we expect global growth and inflation to rise.
-Both the RBA and RBNZ are expected to tighten, in Q2 and Q1 2016, respectively. However, since the RBA will starting from a much lower base at 2.0% (vs the RBNZ’s 3.5%), there will be scope for AU-NZ swap spreads to rise pre-emptively.
Target:
Westpac’s targets AUD/ NZD beyond 1.1300 during the next year.
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