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1 Feb 2016
AUDNZD: Pain trade keeps on hurting, until now? – TDS
FXStreet (Delhi) – Mazen Issa, Senior FX Strategist at TDS, suggests that the risk off mentality since the start of the year has seen the high beta non-defensive currencies underperform versus the USD such as the NZD, GBP and AUD.
Key Quotes
“The risk aversion trade may abate however, aided in part by prospective accommodative efforts from the ECB and stimulus already provided by the BoJ. Additionally, prospects over near-term tightening from the Fed have faded, leaving us with the impression that AUD has scope to rebound further from current levels.
Against this backdrop, we think there is scope for an AUDNZD breakout to the topside. While this directional bet has often been a source of angst for investors, risk/ reward dynamics have tilted in favour of this trade, we think. We would enter at spot (1.0930) with a target of 1.16 and stop at 1.0650.
While it likely remains too early for the RBNZ to ease, a wedge between policy stances has emerged with the central bank adopting a much more aggressive easing bias following an abysmal Q4 inflation print.
Both economies are at different stages of the terms of trade shock. While New Zealand’s ToT decline has been mild thus far, Australia’s shock is well advanced and could even steady due to stabilization in key commodity prices. Technicals and valuations offer topside appeal as well. Indeed, the cross appears to be forming an inverse head and shoulders. Trendline resistance from the 2011 highs suggests that the 1.12/13 area is significant, that if broken, could open significant upside potential, perhaps even above the aforementioned target. Meanwhile, rate differentials also suggest that this cross should be trading closer to 1.15.
We also turned tactically bearish on the kiwi earlier this week, and see NZDCAD downside (targeting 0.8600), which offers risk neutral appeal from equity volatility but also provides a safer punt for those looking to bet on CAD strength should oil prices squeeze higher.”
Key Quotes
“The risk aversion trade may abate however, aided in part by prospective accommodative efforts from the ECB and stimulus already provided by the BoJ. Additionally, prospects over near-term tightening from the Fed have faded, leaving us with the impression that AUD has scope to rebound further from current levels.
Against this backdrop, we think there is scope for an AUDNZD breakout to the topside. While this directional bet has often been a source of angst for investors, risk/ reward dynamics have tilted in favour of this trade, we think. We would enter at spot (1.0930) with a target of 1.16 and stop at 1.0650.
While it likely remains too early for the RBNZ to ease, a wedge between policy stances has emerged with the central bank adopting a much more aggressive easing bias following an abysmal Q4 inflation print.
Both economies are at different stages of the terms of trade shock. While New Zealand’s ToT decline has been mild thus far, Australia’s shock is well advanced and could even steady due to stabilization in key commodity prices. Technicals and valuations offer topside appeal as well. Indeed, the cross appears to be forming an inverse head and shoulders. Trendline resistance from the 2011 highs suggests that the 1.12/13 area is significant, that if broken, could open significant upside potential, perhaps even above the aforementioned target. Meanwhile, rate differentials also suggest that this cross should be trading closer to 1.15.
We also turned tactically bearish on the kiwi earlier this week, and see NZDCAD downside (targeting 0.8600), which offers risk neutral appeal from equity volatility but also provides a safer punt for those looking to bet on CAD strength should oil prices squeeze higher.”