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NAB: Froth Comes Off, No Change To (Bullish) Fundamentals

AUDNZD

NAB note that “After trading to a high of 1.1169 on June 16, the AUDNZD is back below 1.10 with several factors going some way to explaining the recent decline. The unwinding of short NZD/USD speculative positions in recent weeks vs. a still sizeable AUD short has been a growing headwind for the cross, while from a technical perspective the test of the upper Bollinger band was a warning upward momentum was starting to look stretched. Finally, given Australia’s heightened exposure to China, hopes for a robust economic rebound have been dented by Beijing’s strict zero covid policy. That said, albeit somewhat tepid, China’s reopening-led rebound currently looks on track. We still see AUD/NZD gradually edging into a higher trading range over the second half of the year. AU/NZ rate spreads have already begun to move in favour of the cross and we expect more of the same, given the RBA tightening cycle is only at a nascent stage while the RBNZ’s cycle is now well advanced. Furthermore, we still see more challenging domestic economic conditions in NZ compared to Australia. Relative to the NZD, the AUD tends to show a higher degree of sensitivity to heightened levels of risk aversion. This is a new and growing risk amid heightening concerns over the global growth outlook. Still, relative business conditions and terms of trade continue to suggest the AUD/NZD should trend higher over coming months.”

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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