Bank of America Securities Recommends Buying AUD/NZD for Foreign Exchange Traders
In a recent note dated Aug. 28, analysts at Bank of America Securities advised foreign exchange traders to consider buying the Australian dollar versus the New Zealand dollar. The recommendation comes as a result of differing interest rate expectations between the two countries.
Currently, the AUD/NZD is trading at 1.0869, with a slight 0.1% increase. However, it has experienced a 1% decline in the last week and a significant 2.5% drop over the last month.
The bank suggests buying AUD/NZD at 1.0877, with a target of 1.13 by the end of the year and a stop-loss at 1.07, just below the June lows. This recommendation is based on the belief that the Reserve Bank of New Zealand is likely to implement two more rate cuts this year, while the Reserve Bank of Australia is not expected to cut rates until 2025.
Australia's July CPI inflation was higher than expected, further supporting the idea that the RBA will maintain a hawkish stance, despite market expectations of a rate cut by year-end.
Although the recent decline in AUD/NZD can be attributed to positioning and volatility shock in early August, the analysts at BoA Securities are confident that the uptrend channel support at 1.0850 will hold. However, they acknowledge that the trade is not without risks, such as a continued sell-off of the USD, which could impact the strength of the Australian dollar.
Additionally, weak demand for Chinese commodities poses a risk to the trade, although AUD/NZD is typically less sensitive to China sentiment compared to other currencies.
In conclusion, foreign exchange traders should consider the recommendation to buy AUD/NZD based on the differing interest rate outlook between Australia and New Zealand. By understanding these dynamics and potential risks, traders can make informed decisions to potentially benefit from this trade opportunity.