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29 Dec 2014
AUD/NZD: Buy at 1.05, target beyond 1.13 - Westpac
FXStreet (Bali) - Imre Speizer, FX Strategist at Westpac, recommends buying AUD/NZD at 1.05, with levels beyond 1.13 reachable during 2015.
Key Quotes
"We expect Q1 2015 to present a buying opportunity in AUD/ NZD. The 1.0500 area which was last seen in January is an attractive entry level, having been a cycle low three times since 1985 (when the NZD fl oated). We regard January’s low as probably the fourth cycle low."
"We expect the RBA to cut by 50bp in February and March. Markets have already priced in 1 ½ rate cuts and, as is often the case, could easily overshoot and price in more than two cuts. In contrast, the RBNZ reinforced its tightening bias at the Dec MPS by reintroducing explicit language saying the OCR will rise further. The AU-NZ 2yr swap spread, currently at -136bp, could easily fall further to the 155bp low seen in July (see middle chart). A falling AU-NZ interest rate spread will push the cross lower and deliver a buying opportunity."
"During 2015, we expect global growth and inflation to rise. Both the RBA and RBNZ are expected to tighten, in Q2 and Q1 2016, respectively. However, since the RBA will starting from a much lower base at 2.0% (vs the RBNZ’s 3.5%), there will be scope for AU-NZ swap spreads to rise pre-emptively. That, plus a rebound in iron ore prices in 2015, should boost AUD/ NZD beyond 1.1300 during the year."
Key Quotes
"We expect Q1 2015 to present a buying opportunity in AUD/ NZD. The 1.0500 area which was last seen in January is an attractive entry level, having been a cycle low three times since 1985 (when the NZD fl oated). We regard January’s low as probably the fourth cycle low."
"We expect the RBA to cut by 50bp in February and March. Markets have already priced in 1 ½ rate cuts and, as is often the case, could easily overshoot and price in more than two cuts. In contrast, the RBNZ reinforced its tightening bias at the Dec MPS by reintroducing explicit language saying the OCR will rise further. The AU-NZ 2yr swap spread, currently at -136bp, could easily fall further to the 155bp low seen in July (see middle chart). A falling AU-NZ interest rate spread will push the cross lower and deliver a buying opportunity."
"During 2015, we expect global growth and inflation to rise. Both the RBA and RBNZ are expected to tighten, in Q2 and Q1 2016, respectively. However, since the RBA will starting from a much lower base at 2.0% (vs the RBNZ’s 3.5%), there will be scope for AU-NZ swap spreads to rise pre-emptively. That, plus a rebound in iron ore prices in 2015, should boost AUD/ NZD beyond 1.1300 during the year."