Goldman: Taking Profits, But See Further Potential Gains Ahead

Goldman Sachs have noted that “recommended that investors go tactically long AUD/NZD primarily to capture our relative monetary policy view between the two regions. Since we issued the trade recommendation, pricing has moved in our favour after inflation data out of both Australia and New Zealand supported our view.”

• “Given the progress in the trade and fewer near-term catalysts we are closing the trade for a potential gain of 1.26%.”
• “The upcoming RBA and RBNZ meetings will be important factors for AUD/NZD outlook. However, it may take more than one meeting each to realise significantly more hawkish signals from RBA or more explicit growth concerns from the RBNZ.”
• “Despite the limited near-term catalysts for upside, we still see some reasons to stay long AUD/NZD, though upside is more constrained at these levels. First, we still see room for convergence in RBA and RBNZ pricing over time. Second, our estimates show incremental space to price upside in AUD on the China reopening. Third, stronger commodity prices this year should benefit AUD vs NZD on the margin. Finally, if U.S. 10-Year yields move higher as we expect, that should weigh in NZD crosses. Given that these developments have more uncertain time frames, we think taking tactical gains is the best option for now.”