AUD/NZD: Any setback for the kiwi should prove short-lived – MUFG

Analysts at MUFG Bank, continue to have a trade idea of shorting the AUD/NZD pair, with a target at 1.0250, a stop-loss at 1.0750. They point out it reflects continued downside risks for the Australian dollar in the short-term. 

Key Quotes:

“The regulatory crackdown in China and ongoing spread of COVID within Asia has reinforced negative sentiment towards China proxies like the AUD and made investors more nervous over slowing growth in the region. At the same time, the AUD is being undermined by the loss of domestic cyclical momentum as well. Investors are questioning Australia’s zero-Covid policy stance given the potential impact to growth if infections continue to escalate. It has increased the risk of a temporary period of contraction in Q3. However, the RBA’s surprisingly left their plans to begin tapering QE in September unchanged at the recent policy meeting. It has helped to ease some of the downside risk for the AUD in the near-term.”

“Nevertheless monetary policy divergence is still set to widen further between the RBA and RBNZ encouraging further AUD/NZD downside ahead. In light of the stronger labour market data for Q2 and lingering concerns over financial stability risks from the domestic housing market, we now expect the RBNZ to begin rate hikes at next week’s (Wed) meeting.”

“Any setback for the NZD should prove short-lived. We expect at least two rate hikes from the RBNZ before the end of this year well ahead of the RBA which is not planning to hike rates until 2024.”