Go Long AUD/NZD – SocGen
Alvin T. Tan, Research Analyst at Societe Generale, suggests that the
likely monetary policy divergence between the RBA and RBNZ should drive
AUD/NZD higher.
Key Quotes
“New
Zealand’s inflation readings are significantly lower than Australia’s,
and are under the RBNZ’s 1-3% target range. The related iron ore price
outperformance against the milk powder price adds another bullish
near-term factor for the cross. The AUD/NZD cross has the added benefit
of having a low correlation to global asset markets.
Buy AUD/NZD at 1.12, targeting 1.16 initially with a stop at 1.10.
Risks: Renewed China fears
The
Australian economy is more exposed to the Chinese industrial cycle, and
AUD will likely be hit harder on renewed China growth fears. Another
risk is that the RBNZ fails to reduce rates by more than the single 25bp
cut that is priced in this year.”
