AUD/NZD longs still favoured – Nordea Markets

In view of analysts at Nordea Markets, the purest “Asian green shoots” bet is still a long AUD/NZD position and they continue to like the position even after the bounce to +1.06 territory.

Key Quotes

“The main reasons are that i) Australia is more directly linked to the Chinese credit cycle than New Zealand, ii) RBA is/was priced to cut more than RBNZ and iii) positioning indicates that AUD is among the most hated G10 currencies, while NZD positioning is squarer versus USD. We would consider taking profit above 1.0670.”

“Last week, RBNZs Orr sounded a little dizzy in his assessment of the monetary policy outlook. On one hand capacity utilization and terms of trade are almost record high, but on the other hand inflation is below target.”

“CFTC-data reveals that markets are still massively short the odd bedfellows JPY and AUD at the same time. At some point one of these short positions probably must give in and with green shoots in Asia, it may be that it is the AUD positioning that is most likely to be reversed. Those who really buy into our green shoots story may hence opt to go long AUD/JPY (we though refrain from doing it, as we still see risks from e.g. the short volatility positioning).”

“Technically, we will get a big test of the recent AUD/JPY momentum around 81.50 (the downtrend from Sep-17). Unless AUD/JPY breaks that level on the topside, the structural downtrend seems intact.”