22 May 2015
AUD/NZD remains a short for 1.0340 – BNPP
FXStreet (Barcelona) - Steven Saywell of BNP Paribas, believes that AUD/NZD is set to reverse lower, with fundamentals and positioning supporting the bearish view.
Key Quotes
“AUDNZD has rallied quickly from just above parity to above 1.08. The pair has now breached the year’s high but failed to break decisively above the December high of 1.0870. Given our expectations for a new record below parity, the current level offers significant potential value as an entry point.”
“BNP Paribas positioning analysis reports net short NZD exposure is at -34: the largest among G10 currencies. This level exceeds the previous 2015 low of -25 and is now very close to the historical maximum short exposure for NZD. In contrast, the market is close to neutral for both the AUD and CAD.”
“BNP Paribas STEER signals that NZDUSD is now undervalued by 2.14 z-scores (two standard deviations). This corresponds to a 4% undervaluation. The combination of a large STEER undervaluation and extreme short positioning is a powerful argument for a rebound.”
“There is a strong macroeconomic rationale for AUDNZD to fall. 2-year relative yield differentials currently justify the lofty levels of AUDNZD. Still, fixed income markets are pricing in two 25bp rate cuts by the Reserve Bank of New Zealand (RBNZ) by the year end, but are unsure as to whether the Reserve Bank of Australia will ease at all. We estimate that this spread is at an extreme and likely to narrow over the coming months. Markets are likely pricing in too much easing for the RBNZ.”
“House price inflation has accelerated to a 12-month high of 9.3% y/y, retail sales reached 2.7% y/y in Q1 (an eight-year high) and 2-year inflation expectations rose for the first time in Q2 after declining for several quarters.”
“We initiate a short AUDNZD exposure at 1.0780 target 1.0340 with a stop at 1.0945.”
Key Quotes
“AUDNZD has rallied quickly from just above parity to above 1.08. The pair has now breached the year’s high but failed to break decisively above the December high of 1.0870. Given our expectations for a new record below parity, the current level offers significant potential value as an entry point.”
“BNP Paribas positioning analysis reports net short NZD exposure is at -34: the largest among G10 currencies. This level exceeds the previous 2015 low of -25 and is now very close to the historical maximum short exposure for NZD. In contrast, the market is close to neutral for both the AUD and CAD.”
“BNP Paribas STEER signals that NZDUSD is now undervalued by 2.14 z-scores (two standard deviations). This corresponds to a 4% undervaluation. The combination of a large STEER undervaluation and extreme short positioning is a powerful argument for a rebound.”
“There is a strong macroeconomic rationale for AUDNZD to fall. 2-year relative yield differentials currently justify the lofty levels of AUDNZD. Still, fixed income markets are pricing in two 25bp rate cuts by the Reserve Bank of New Zealand (RBNZ) by the year end, but are unsure as to whether the Reserve Bank of Australia will ease at all. We estimate that this spread is at an extreme and likely to narrow over the coming months. Markets are likely pricing in too much easing for the RBNZ.”
“House price inflation has accelerated to a 12-month high of 9.3% y/y, retail sales reached 2.7% y/y in Q1 (an eight-year high) and 2-year inflation expectations rose for the first time in Q2 after declining for several quarters.”
“We initiate a short AUDNZD exposure at 1.0780 target 1.0340 with a stop at 1.0945.”