Goldman: Further Tactical Upside Anticipated, Issue Long Recommendation

Late on Friday Goldman Sachs noted that “the rapid reopening in China has benefitted AUD over the last few weeks. Going forward, we think that the reopening will continue to be a positive impulse for AUD, though some of the news has already been priced.”

• “Early signs from our Asia equity strategy team’s regulation barometer may also indicate a slightly more market-friendly regulatory environment, which should favor risky assets.”
• “Plus, recent news reports suggest a potential easing in China restrictions on Australian trade restrictions, which should be positive for AUD on the margin.”
• “On the domestic side, while the RBA has shifted to a slower pace of hikes, economic data have remained strong, we still see upside risks to terminal rate pricing.
• “Meanwhile, we do not think NZD stands to benefit vs AUD as much on a relative basis on the recent China news, and higher U.S. yields recently have hurt the NZD. Also, the RBNZ seems to be on a less sustainable path toward tighter policy, though data have clearly surprised to the upside. Housing market vulnerabilities in NZ are especially worrying in the context of the Bank’s policy.”
• “We recommend investors go tactically long AUD/NZD with a target of NZ$1.12 and a stop of NZ$1.06 to capture upside on this view.”