Buy AUD/NZD for target of 1.0800 - Westpac

The analysis team at Westpac suggests to go long on AUD/NZD cross with the following parameters:

“Entry: 50% at 1.0665, further 50% at 1.0580, Stop: 1.0530, Target: 1.0800.”

 Key Quotes

“Rationale:

• AUD/NZD upside has been a perennial source of disillusion but the cross is nevertheless offering value for a quick tactical long trade near the bottom of its near 3-month range (1.06-1.10).
• The cross has been pinned down by weakness in iron prices but an aggressive push higher in Chinese steel prices (+22% YTD and +11.8% MTD) should confer an underlying bid to iron ore prices near term.
• Markets have trimmed RBNZ rate hike expectations in the wake of their neutral policy signal from their 11 May meeting but pricing remains notably more aggressive, with about two +25bp rate hikes priced in by end-2018 vs the RBNZ’s OCR projections for the first hike to come in late-2019.
• The main risk near term is that rates markets continue to "defy the RBNZ", especially if this week's Budget signals a shift to a more expansionary fiscal policy (general election in September).”