A Comparing Spread Betting Forex Focus: Australian dollar / New Zealand dollar exchange rate 'flapping higher'

Written by Will Peters Thursday, 12 April 2012 14:36

Comparing Spread Betting:  Since 20 February, AUD/NZD has depreciated 1.2% to around 1.265.

This has been driven by narrowing Australia-New Zealand interest rate differentials in response to relative data surprises and a softening in investor risk sentiment, to which the AUD is more sensitive.

Barclays have issued a note to clients, seen by Comparing Spread Betting, which takes a look at the outlook for this currency pair:

"With AUD/NZD at a key juncture, in our view, the degree of uncertainty around its future path is arguably greater. From a macro perspective, we think a scenario of benign global growth is somewhat more likely and would benefit the AUD to a greater extent.

"In this scenario, upcoming China, US and Australia economic data, further Chinese policy easing and US corporate earnings season would ease growth fears and support a general recovery in risk sentiment, in our view.

"The market would likely claw back some of the 80bp of RBA rate cuts currently priced in for the next eight months and global equities would likely recover, in turn pushing AUD/NZD higher.

"We also estimate a return to fair value for AUD and NZD implies modest AUD/NZD appreciation. While Barclays’ technical strategists remain bearish AUD/NZD, they also note that a close above the channel highs of 1.2686 would open up a corrective swing to 1.2800-1.2825. We thus maintain our AUD/NZD forecast of 1.28 and 1.27 in one and three months, respectively.

"The clear risk to this scenario is that US and particularly Chinese economic activity deteriorate faster than expected. In this environment, AUD/NZD would likely weaken further as investors price further RBA rate cuts and global equities weaken.

"Medium-term, we remain generally constructive on AUD/USD and NZD/USD, partly on the expectation that both countries maintain their yield advantage over other G10 economies where interest rates are likely to remain extremely low for an extended period of time."

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