Treasure Chest | Mar 12 2013
By Greg Peel
The New Zealand dollar rallied strongly against the Australian dollar in early February but sensing a turnaround, ANZ’s forex strategists went long Aussie-Kiwi at NZ$1.2240 and subsequently took profits at 1.2470. ANZ now sees another opportunity to go long Aussie given a pullback in the interim.
Last week Australia saw a bounce in the manufacturing PMI for February (to a slower level of contraction) and given a high correlation, the strategists expect today’s NAB business confidence survey to also be positive. ANZ also expects Thursday’s jobs data to show an addition of 20,000 plus jobs.
By contrast, New Zealand is now experiencing drought conditions and ANZ notes the past two droughts in 2007-09 and 1997-99 lead to recession. The 2007-09 period arguably offered another reason for recession but either way economists believe the current drought could shave between a half and one percentage point off GDP in 2013.
The Reserve Bank of New Zealand is also due to make a rate decision on Thursday. ANZ expects the RBNZ to again draw attention to the overly strong Kiwi. At present, Australian money markets have been reining in their RBA rate cut expectations while NZ markets have been expecting a tightening bias. ANZ believes this week’s RBNZ monetary policy statement may see NZ markets easing off on their rate hike expectations.
Add this up, and the Aussie should rise against the Kiwi. ANZ suggests going long at 1.2440 for a move to 1.2650 with a stop-loss at 1.2330.
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