December 05, 2024 at 07:54PM
ANZ recommends going long AUD/NZD in early 2025, anticipating AUD outperformance driven by diverging monetary policies, growth dynamics, and New Zealand’s diminishing carry advantage.
Key Points:
Year-End Weakness in AUD/NZD:
Seasonal factors and risk sentiment tend to drive AUD/NZD lower into year-end.
Strong NZD demand from seasonal exporter flows in November and December typically supports the NZD.
Medium-Term Trade Opportunity:
Current levels around 1.08 present an opportunity to establish long positions in AUD/NZD.
Target range: 1.10 and above in 2025.
Monetary Policy Divergence:
ANZ expects the RBNZ to cut rates earlier and more aggressively than the RBA:
RBNZ: 50bp cut expected in February 2025, with a total rate of 3.4% by end-2025.
RBA: Rate cuts to begin in May 2025, with a total of only 50bp, leaving the policy rate at 3.8% by end-2025.
Relative Economic Growth:
Australia’s GDP outlook appears more optimistic than New Zealand’s:
RBA forecasts moderate growth, while RBNZ anticipates a Q3 contraction of -0.2% q/q before mild recovery.
Australia’s smaller current account deficit also supports the AUD.
Conclusion:
While seasonal factors and risk sentiment may temporarily weaken AUD/NZD into year-end, ANZ sees this as an opportunity to build long positions around 1.08, targeting 1.10 and above in 2025. Diverging monetary policy and stronger Australian growth dynamics provide a robust foundation for AUD outperformance.
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This article was written by Adam Button at www.forexlive.com.
