Tactical opportunity to sell AUD/NZD – ANZ

FXStreet (Delhi) – Research Team at ANZ, suggests that given the divergence in our view on both the near-term pricing of central bank actions and the near-term trajectory of both iron ore and milk, we recommend selling AUD/NZD and their initial target is the middle of the recent range, at 1.0730, with a stop at 1.1130.

Key Quotes

“The AUD has performed relatively well over the past few weeks, taking some heart from the recovery in emerging market sentiment and in the continued stability of the long end of the US curve. This outperformance has been particularly notable on the crosses, with AUD/NZD and AUD/EUR both rallying strongly.”

“Domestic news has been a part of this rally, with the surprisingly strong employment print contributing to the boost. RBA pricing is currently suggesting only around half a 25bp cut is expected by mid-next year – a significant shift from a few weeks ago when the market believed the RBA would cut the cash rate twice by then.”

“In addition, with financial market sentiment and RBA pricing in focus, the AUD has traded very well relative to the poor performance in commodity markets. Should the market take note of this divergence, it will also undermine the AUD.”

“Conversely, in New Zealand, interest rate markets are currently pricing the chance of a cut at the 10 December RBNZ meeting at around 60%. This makes this meeting relatively pivotal for the NZD.”

“ANZ is out of consensus, being one of only two banks (and the only domestic bank) expecting the RBNZ to hold rates steady. This view is driven by our belief that there has not been a lot of data to alter the RBNZ’s opinion since it held rates steady at the 29 October meeting.”

“In fact, the data that have been released since the 29 October meeting have continued to stabilise. Outside of dairy, the economy has continued to show signs of stabilisation and improvement, and the likes of the tourism sector is outright booming.”

“On the flip side, dairy price volatility continues to be a concern. That said, the recent fall in the dairy futures looks to have run its course and we are expecting stabilisation from here on in.”

Research Team at ANZ, suggests that given the divergence in our view on both the near-term pricing of central bank actions and the near-term trajectory of both iron ore and milk, we recommend selling AUD/NZD and their initial target is the middle of the recent range, at 1.0730, with a stop at 1.1130.

(Market News Provided by FXstreet)