In the ever-changing world of foreign exchange, staying informed is crucial. Recent insights from Bank of America (BoA) Securities suggest that buying the Australian dollar (AUD) against the New Zealand dollar (NZD) could be a profitable move. Buying AUD/NZD is recommended currently and we will explore multiple times to ensure a clear understanding of why this trade is recommended.
Market Positioning and Interest Rate Expectations
BoA Securities highlights the importance of market positioning and differing interest rate expectations between the two countries. Currently, AUD/NZD is trading at 1.0869, having dropped nearly 2.5% in the last month. However, BoA recommends buying AUD/NZD at 1.0877, with a target of 1.13 by year-end. The reasoning behind this recommendation is the relative monetary policy outlook. While the Reserve Bank of New Zealand (RBNZ) is expected to cut rates twice this year, the Reserve Bank of Australia (RBA) is likely to maintain its rates until 2025.
Inflation and Market Sentiment
Australia’s July CPI inflation was higher than expected, strengthening BoA’s conviction that the RBA will continue its hawkish stance. This contrasts with the market’s anticipation of a rate cut by year-end. The fall in AUD/NZD over the past month was primarily driven by positioning. A significant volatility shock in early August led to a broad unwinding of crowded trades. However, BoA believes that positioning has likely lightened, and the uptrend support of 1.0850 will hold.
Risks and Considerations
While buying AUD/NZD seems promising, there are risks to consider. A continued USD sell-off could impact NZD/USD, leading to better bids for NZD, which might weigh on AUD/NZD. Additionally, weak commodity demand from China could pose a risk, although AUD/NZD tends to be less affected by China sentiment compared to AUD/USD.
Conclusion
In summary, buying AUD/NZD appears to be a strategic move, backed by solid market analysis and the differing monetary policies of Australia and New Zealand. Stay informed with the latest Forex trading news and analysis by visiting our website at Fixio Markets.
