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31 Jul 2014
AUD/NZD: Potential pause to the vertical move? - Westpac
FXStreet (Bali) - According to Sean Callow, FX Strategist at Westpac, while there is probably still scope for AUD/NZD 1.12 multi-week, recent AUD price action suggests that the pair may be due for a correction near term.
Key Quotes
Following New Zealand’s Q2 CPI data on 17 July, we added a half unit of long AUD/NZD to our Forex Focus portfolio at the prevailing spot rate (1.0755) and looked to add on any weakness to 1.0705. The cross has trended higher since then so we were not filled on the other half unit.
We argued for gains in AUD/NZD multi-day given that “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… (New Zealand’s) CPI outcome was softer than expected and while the RBNZ is set to hike next week, it is likely to signal a pause.” This story has played out in line with our expectations, with additional impetus from a slightly firmer than expected core Australian CPI reading and stronger language on NZD in the RBNZ that arguably implies an intervention threat.
Multi-week there should be scope on AUD/NZD to around 1.12. But short term, having had a bounce on the Fonterra payout projection Tuesday, we now lack obvious catalysts for yet another sizeable move higher. Moreover, AUD price action on the US GDP/FOMC-driven bout of USD strength has been poor, followed by the dip on the sub-consensus Australian building approvals and Q2 export price data. We have hit our trailing take profit order at 1.0975, for a 2.0% return and are now square.
Key Quotes
Following New Zealand’s Q2 CPI data on 17 July, we added a half unit of long AUD/NZD to our Forex Focus portfolio at the prevailing spot rate (1.0755) and looked to add on any weakness to 1.0705. The cross has trended higher since then so we were not filled on the other half unit.
We argued for gains in AUD/NZD multi-day given that “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… (New Zealand’s) CPI outcome was softer than expected and while the RBNZ is set to hike next week, it is likely to signal a pause.” This story has played out in line with our expectations, with additional impetus from a slightly firmer than expected core Australian CPI reading and stronger language on NZD in the RBNZ that arguably implies an intervention threat.
Multi-week there should be scope on AUD/NZD to around 1.12. But short term, having had a bounce on the Fonterra payout projection Tuesday, we now lack obvious catalysts for yet another sizeable move higher. Moreover, AUD price action on the US GDP/FOMC-driven bout of USD strength has been poor, followed by the dip on the sub-consensus Australian building approvals and Q2 export price data. We have hit our trailing take profit order at 1.0975, for a 2.0% return and are now square.