J.P.Morgan Issue Long AUD/NZD Recommendation

Late on Friday J.P.Morgan wrote “we are bullish AUD/NZD, forecasting further appreciation into next year.”

• “NZ Q3 CPI showed marked acceleration, and while we don’t attribute too much momentum to that, the result puts the RBNZ in a very difficult spot. Growth, consumption and housing data have all weakened, but evidence of traction in inflation is lagging, and front-end repricing post-CPI pushed implied mortgage rates to levels beyond banks’ stress-test levels. The sense that interest servicing is becoming a constraint before inflation comes down requires risk premia to be attached to either NZD inflation, or - if the RBNZ doesn’t have scope to wait out the lags - real assets like housing and equities.”
• “The very high level of mortgage rates also should cap bullish market reactions to any potential data beats in the near-term.”
• “Admittedly AUD CPI was also firmer than expected, but importantly didn’t show acceleration.”
• “A similar conclusion holds on the fiscal side: the new Australian government’s first Budget offered minimal policy changes and so the fiscal impulse is only being trimmed passively. By contrast, NZ Finance Minister Robertson flagged more fiscal conservatism after already shifting to a much tighter stance in May.”
• They recommended entering a long AUD/NZD position at NZ$1.1046, with a stop loss set at NZ$1.0770.