AUD/NZD: Buying dips, likely to move higher through 2020 – TD Securities
Analysts from TD Securities forecast the AUD/NZD pair will move higher during 2020. They see it at 1.06 by June and ending the year at around 1.08.
“The RBA's hurdle to cut is high. Gov Lowe indicated the Bank would consider easing if the unemployment rate deteriorates 'materially' and if there was no further progress on the inflation target. We currently have the RBA easing in Apr, but acknowledge the risk is for the RBA to cut later in Q2. By the May meeting the RBA will have 2 jobs prints and the inflation report. Yields are nudging record lows across the curve - 3yrs low is 0.548% (4th Feb'20) and 10yrs is 0.85% (16th Aug'19). Yields around these levels are consistent with the RBA cutting the cash rate to 0.5%. We don't rule out a further drop in yields should the virus dislocate supply chains, but with yields near range lows, 3s10s curve flatteners appear as the better risk-reward trade.”
“AUD has maintained its status as the barometer of global health. Along with EUR, it has traded sharply lower as uncertainty has ripped through the global supply chain. The move have exceeded levels justified by shortterm drivers and short positioning looks extreme. While it could drop a touch more, we prefer buying dips in AUDNZD.”
“Cyclical and structural force s have weighed on NZD. It’s trades to mix of global and local factors, leaving it vulnerable to a very uncertain regional growth outlook. Supply side reform is a negative structural force, especially as the BoP remains challenge. NZD’s sensitivity to these flow dynamics should limit upside over the coming months and slower moving value model should point to a higher AUDNZD through 2020.”