17 Jul 2014
AUD/NZD bear run has come to an end - Westpac
FXStreet (Bali) - Westpac FX Strategists think that the stellar NZD run has come to an end, and as such, they have added a half unit of long AUD/NZD to their Forex Focus portfolio, looking to add to weakness to 1.0705, with a stop around 1.0624.
Key Quotes
"The NZ$ has had an incredible run in recent weeks, driven by the RBNZ's aggressive monetary policy cycle, a climax of buying from non-believers and a global central bank inspired surge in carry trade buying. This has driven the NZ TWI to record highs and NZD/USD to within a few pips of the post float high seen in 2011."
"We think that this run has come to an end. The currency now faces a rising list of headwinds - data in New Zealand has softened noticeably in recent weeks; dairy prices have slumped by a third so far this year and are at lows back to December 2012; yesterday's CPI outcome was softer than expected and while the RBNZ is set to hike next week, it is likely to signal a pause."
"Meanwhile in Australia, markets are continuing to part price in rate cuts (60% probability of a 25bps cut early 2015) driven by recent weakness in both consumer spending and housing data post the Budget. Bill Evans yesterday noted that he does not think that next week's CPI print will be low enough to accommodate this pricing. On top of this, iron ore has shown signs of stabilising and both FMG and Rio reported record production in Q2 yesterday. Further, yesterday's crop of Chinese data suggests that Q1 was the low point for Chinese growth and activity should continue to pick up into year end."
"We have been waiting for better levels to buy AUD/NZD and were hoping for such an opportunity into yesterday's CPI outcome/ next week's RBNZ rate hike. However, the combination of the weak dairy trade auction, the low NZ CPI print and well received production updates from Australian miners has tilted our views higher."
"Our NZ Chief Economist Dominick Stephens notes in his RBNZ preview that they expect the RBNZ to hike to 3.5% but that next week’s July OCR Review is no longer a “done deal”. The RBNZ will likely state that it intends to briefly pause the programme of OCR hikes after July and we now believe that the RBNZ will hold rates at 3.5% until January. Dominick also notes that "the RBNZ might consider intervening in currency markets by selling New Zealand dollars after the July OCR Review".
"This clearly suggests to us that we have now seen an important low for AUD/NZD. We have therefore added a half unit of long AUD/NZD to our Forex Focus portfolio at current prices (1.0755) and will look to add to weakness to 1.0705. We will run a stop around the recent lows of 1.0624."
Key Quotes
"The NZ$ has had an incredible run in recent weeks, driven by the RBNZ's aggressive monetary policy cycle, a climax of buying from non-believers and a global central bank inspired surge in carry trade buying. This has driven the NZ TWI to record highs and NZD/USD to within a few pips of the post float high seen in 2011."
"We think that this run has come to an end. The currency now faces a rising list of headwinds - data in New Zealand has softened noticeably in recent weeks; dairy prices have slumped by a third so far this year and are at lows back to December 2012; yesterday's CPI outcome was softer than expected and while the RBNZ is set to hike next week, it is likely to signal a pause."
"Meanwhile in Australia, markets are continuing to part price in rate cuts (60% probability of a 25bps cut early 2015) driven by recent weakness in both consumer spending and housing data post the Budget. Bill Evans yesterday noted that he does not think that next week's CPI print will be low enough to accommodate this pricing. On top of this, iron ore has shown signs of stabilising and both FMG and Rio reported record production in Q2 yesterday. Further, yesterday's crop of Chinese data suggests that Q1 was the low point for Chinese growth and activity should continue to pick up into year end."
"We have been waiting for better levels to buy AUD/NZD and were hoping for such an opportunity into yesterday's CPI outcome/ next week's RBNZ rate hike. However, the combination of the weak dairy trade auction, the low NZ CPI print and well received production updates from Australian miners has tilted our views higher."
"Our NZ Chief Economist Dominick Stephens notes in his RBNZ preview that they expect the RBNZ to hike to 3.5% but that next week’s July OCR Review is no longer a “done deal”. The RBNZ will likely state that it intends to briefly pause the programme of OCR hikes after July and we now believe that the RBNZ will hold rates at 3.5% until January. Dominick also notes that "the RBNZ might consider intervening in currency markets by selling New Zealand dollars after the July OCR Review".
"This clearly suggests to us that we have now seen an important low for AUD/NZD. We have therefore added a half unit of long AUD/NZD to our Forex Focus portfolio at current prices (1.0755) and will look to add to weakness to 1.0705. We will run a stop around the recent lows of 1.0624."