Goldman: Faster China Reopening Adds Additional Support

Goldman Sachs note that “recent news suggesting an earlier-than-expected reopening in China has led both AUD and NZD to appreciate quickly, with NZD also benefiting from a decline in the US 10-Year yield and a more hawkish RBNZ.”

• “Given AUD and NZD’s close ties to China, both currencies should benefit vs. USD from an earlier reopening, even if the process proves to be less than smooth.”
• “Relatively speaking, AUD should be a bigger beneficiary than NZD from a terms of trade perspective on a resumption of Chinese demand.”
• “Still, monetary policy will remain an important differentiator. Economic data in Australia have surprised to the upside though. As a result, we continue to see upside risks to terminal rate pricing in Australia, which could drive the currency stronger.”
• “Meanwhile, the RBNZ is on a potentially less sustainable path toward tighter policy (though data have been strong in New Zealand as well), leaving risks skewed toward less policy differentiation than we are seeing now.
• “As a result, we are revising our AUD/USD forecasts to $0.66, $0.68 and $0.71 in 3, 6 and 12 months (from $0.62, $0.67 and $0.71 previously) and our NZD/USD forecasts to $0.60, $0.62 and $0.64 (from $0.54, $0.60 and $0.64 previously). This implies AUD/NZD at NZ$1.10, NZ$1.10 and NZ$1.11 (versus NZ$1.15, NZ$1.12 and NZ$1.11 previously).”