AUD/CAD & NZD/CAD Shorts Ideal for This Latest Burst of Risk Aversion? - Westpac
AUD/CAD & NZD/CAD Shorts Ideal for This Latest Burst of Risk Aversion? - Westpac
Richard Franulovich, Research Analyst at Westpac, suggests that the
markets have been leaning toward a more risk averse tone in recent days.
Key Quotes
“There are some key
differences between the current skittish backdrop and that which
pervaded in Jan-Feb 2016, as well as some key event risk on the horizon,
all of which suggests that any risk aversion in coming weeks should
leave fewer scars than earlier this year.
Short AUD/CAD and
NZD/CAD appear ideal for navigating these risks. These two crosses have a
lower beta with respect to risk appetite than other currency pairs and
should be somewhat insulated from any misreading of the earlier risk
positive events. More importantly, there seems to be a subtle shift
underway in growth, policy and terms of trade differentials back in
Canada’s favour.
On balance the background to this latest burst
of risk aversion is less worrisome than the Jan-Feb spike in risk
premiums. Upcoming event risk is more likely than not to short-circuit a
deeper risk aversion move. Short AUD/CAD and NZD/CAD appear ideal for
navigating these risks.
AUD/CAD is at the higher end of its
two-year range and offers better location for shorts than NZD/CAD, the
latter closer to the middle of a larger 0.80-0.95 range. A run to the
bottom of these larger two-year ranges in coming months implies 6-7%
downside in both pairs.”
(Market News Provided by FXstreet)
