Recent developments
A dovish RBNZ policy announcement has been conducive to the pair's push to a six-month high. Further monetary policy of asset purchases over negative rates was largely expected.
Technical analysis
The pair has given back a bit since rallying at its fastest pace since 2014 (around 7% increase in just over a month). If it can break past previous 1.0850 key level, then there should be a chance to test 1.10 or at the very least trade up the channel with ease.
Primary drivers for a further move up
On the fundamental side, elevated risk sentiment on the backdrop of bottoming growth in markets, as well as the continued divergence between RBA and RBNZ should support the upward direction of the pair. Policymakers have remained quite dovish, which should be risk-positive as central banks have incentive to ease rather than tighten. With that being said, the RBNZ policy stance is looking more dovish than the RBA's. We can look at both policy stances and yield curves for an indication of what's to potentially come.
The RBNZ have kept the official cash rate at 25 bp, while the base of asset purchasing have been expanded to a cap of NZ$60bn. Although the market seems to be pricing in negative rates, I don't think it's likely that we will see that, given that the RBNZ effectively guided that it won't happen (at least for this year - although this could be on the cards for 2021). Why lose all credibility on forward guidance when there are other methods of easing such as bond purchasing or fixed term loans? Either way, the base case is further easing and I would look towards August and June meetings as further catalysts if financial conditions tighten.
On the contrary, the RBA has stopped purchasing bonds since early May after hitting 25 bp on the 3Y; keeping the curve at the current levels should be supportive to Australia, which remains a relatively high yielding Aaa country (despite slight rating downgrade).
Risks
Downside risk on AUD/NZD lie in 1) narrowing policy differentials, 2) risk sentiment softening, 3) and/or a more hawkish RBNZ that would lead to NZD strength, thus pushing the pair lower.
As such, targeting top end of the channel 1.1000 with a stop of 1.05985.
A dovish RBNZ policy announcement has been conducive to the pair's push to a six-month high. Further monetary policy of asset purchases over negative rates was largely expected.
Technical analysis
The pair has given back a bit since rallying at its fastest pace since 2014 (around 7% increase in just over a month). If it can break past previous 1.0850 key level, then there should be a chance to test 1.10 or at the very least trade up the channel with ease.
Primary drivers for a further move up
On the fundamental side, elevated risk sentiment on the backdrop of bottoming growth in markets, as well as the continued divergence between RBA and RBNZ should support the upward direction of the pair. Policymakers have remained quite dovish, which should be risk-positive as central banks have incentive to ease rather than tighten. With that being said, the RBNZ policy stance is looking more dovish than the RBA's. We can look at both policy stances and yield curves for an indication of what's to potentially come.
The RBNZ have kept the official cash rate at 25 bp, while the base of asset purchasing have been expanded to a cap of NZ$60bn. Although the market seems to be pricing in negative rates, I don't think it's likely that we will see that, given that the RBNZ effectively guided that it won't happen (at least for this year - although this could be on the cards for 2021). Why lose all credibility on forward guidance when there are other methods of easing such as bond purchasing or fixed term loans? Either way, the base case is further easing and I would look towards August and June meetings as further catalysts if financial conditions tighten.
On the contrary, the RBA has stopped purchasing bonds since early May after hitting 25 bp on the 3Y; keeping the curve at the current levels should be supportive to Australia, which remains a relatively high yielding Aaa country (despite slight rating downgrade).
Risks
Downside risk on AUD/NZD lie in 1) narrowing policy differentials, 2) risk sentiment softening, 3) and/or a more hawkish RBNZ that would lead to NZD strength, thus pushing the pair lower.
As such, targeting top end of the channel 1.1000 with a stop of 1.05985.
Trade active:
Active 1.07176
Trade closed: target reached:
Apologies for not updating the idea - TP was reached @1.1000