Investing.com – Foreign exchange traders should consider buying the Australian dollar against the New Zealand dollar, according to Bank of America Securities, citing diverging interest rate outlooks.
At 07:45 ET (11:45 GMT), the pound was trading 0.1% lower at 1.0869, having fallen about 1% in the past week and about 2.5% over the past month.
“We recommend buying AUD/NZD at 1.0877, targeting our year-end forecast of 1.13 with a stop loss of 1.07, just below the June lows,” analysts at Bank of America Securities said in a note dated August 28.
The relative outlook for monetary policy remains unchanged – the Reserve Bank of New Zealand is likely to deliver two more rate cuts this year, while the Reserve Bank of Australia is unlikely to cut rates until 2025, the bank said.
The Reserve Bank of Australia added that Australia’s consumer price index inflation rate in July came in above consensus, reinforcing its belief that the Reserve Bank of Australia will maintain its recent hawkish rhetoric at a time when the market still expects a rate cut by the end of the year.
Analysts added that the decline in AUD/NZD over the past month was primarily driven by positioning, as the volatility shock in early August led to a widespread liquidation of crowded trades, but AUD/NZD has continued to oscillate even after this episode, and positioning is likely to extend after the dovish RBNZ on August 14.
“Positioning is a risk to this trade but it has likely calmed down and we have a stronger conviction that uptrend channel support at 1.0850 will hold,” Bank of America said.
Another risk is that the USD sell-off continues, as it would be better to place better bids when the USD weakens due to poor liquidity, which ultimately affects the AUD/NZD pair.
Weak Chinese demand for commodities is also a risk, although AUD/NZD tends to be less sensitive to China sentiment than NZD.
Comments are closed, but trackbacks and pingbacks are open.