Investing.com – Currency traders should consider buying the Australian dollar versus the New Zealand dollar, according to Bank of America Securities, citing differing interest rate expectations.
At 07:45 ET (11:45 GMT), it was trading down 0.1% at 1.0869, after falling just under 1% in the past week and almost 2.5% in the past month.
“We recommend buying AUD/NZD at 1.0877, targeting our year-end forecast of 1.13 with a stop-loss at 1.07, just below the June lows,” BoA Securities analysts said in a note from August 28.
The relative outlook for monetary policy remains unchanged, with the Reserve Bank of New Zealand likely to make two more rate cuts this year, while the Reserve Bank of Australia is unlikely to cut rates until 2025, the bank said.
Australian CPI inflation in July was above consensus, BoA added, reinforcing its belief that the RBA will maintain its recent hawkish rhetoric at a time when the market is still pricing in a cut towards the end of the year.
The decline in the AUD/NZD over the past month was mainly driven by positioning, the analysts added, as the volatility shock in early August led to a broad unwinding of busy trades, but the AUD/NZD continued to hold even after this episode long screening. , and positions likely expanded after the dovish RBNZ on August 14.
“Positioning is a risk on this trade but has likely lightened and we are more confident that the upside channel support at 1.0850 will hold,” BoA said.
Another risk is that the USD sell-off continues, as is usually the case when the USD weakens due to weaker liquidity, which ultimately weighs on the AUD/NZD.
Weak demand for Chinese commodities is also a risk, although AUD/NZD tends to be less sensitive to Chinese sentiment than .
