Goldman Sachs: Neutral The Cross Ahead Of Likely RBA Easing

Goldman Sachs note that "the AUD has weakened against the NZD over the past month, reaching levels just above 1.07 after hitting 1.10 in mid-August. The latest impetus for the decline has been rising odds of an RBA cut by the end of the year (new hedges ahead of the US election may be adding additional downside pressure on AUD.) Given an RBA cut by November is now mostly priced (and RBNZ cuts have been priced for a while), we recommend turning tactically neutral at these levels and see risks on both sides. On the one hand, consensus growth expectations have been improving more quickly in New Zealand than in Australia as Auckland has mostly emerged from its latest lockdown, while Melbourne's remains underway. On the other hand, if vaccine approval appears imminent and polling remains strongly in favor of a Biden win, we expect cyclical currencies to significantly outperform. Positioning appears to be slightly long both currencies with a bit more length in NZD, making it more of a neutral factor, in our view. Overall, one of our main rationales for liking AUD/NZD higher was relative monetary policy expectations, but a more dovish RBA and the latest shift in market pricing now argues for a choppier range until the risk backdrop improves (as we ultimately expect)."