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
“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.”