MUFG sees the long AUD/NZD trade as attractive due to diverging monetary policies between the RBA and RBNZ. The AUD has outperformed the NZD over the past month, driven by speculation of RBA policy shifts, while the RBNZ is expected to remain on hold.
Key Points:
- Performance Divergence: AUD has been the best performing G10 currency (+1.3% vs. USD) over the past month, while NZD has been the second worst (-1.2% vs. USD).
- RBA Speculation: The AUD's strength is driven by speculation that the RBA will diverge from other G10 central banks, potentially raising rates.
- RBNZ Hold: The RBNZ is expected to remain on hold after delaying rate cuts to the second half of next year, despite indicating potential for further rate hikes if needed.
- New Zealand Data: Softer activity and inflation data in New Zealand are not supportive of higher rates or a stronger NZD.
- AUD/NZD Outlook: MUFG expects AUD/NZD to continue its rise beyond the 1.1000-level.
Conclusion:
MUFG favors a long AUD/NZD position due to expected RBA policy divergence and weaker New Zealand economic data. This divergence supports the continued outperformance of the AUD over the NZD, making the long AUD/NZD trade attractive.
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