AUD/NZD 4H

Macro View:

AUD: The narrative of prolonged high US rates continues to weigh on AUD/USD. However, aside from the BoJ, the RBA is likely to be the only G10 central bank with a tightening bias and the last to cut rates. Despite having a lower real policy rate than the US, Australia faces a more persistent inflation issue. As a result, the AUD-USD short-term rates differential has likely bottomed out. Sentiment towards China seems to be stabilizing, and global growth, along with Australia's commodity prices and trade balance, remains strong. China's increasing production of electric vehicles and renewable energy will support prices for Australian LNG, iron ore, copper, nickel, and lithium. Additionally, Australia's Monthly CPI surged to 4%, leading the OIS pricing on RBA policy changes to indicate a greater than 50% probability of a 25bp hike by September. At the last policy meeting on June 18th, Governor Bullock indicated that the RBA's bias leaned towards a hike, as a rate increase was discussed while a rate cut was not considered. Consequently, from an FX perspective, this supports yields and suggests a longer period before the RBA considers a cut, reinforcing a bullish view on AUD, particularly against CAD and NZD.

NZD: While New Zealand inflation remains resilient, markets doubt that the RBNZ wants or needs to hike rates again. The economy has entered into a double-dip recession, and both the labor market and wage growth are softening. Recent comments from the New Zealand Treasury have further pressured the NZD, alongside data indicating economic weakness, making forecasts challenging. Additionally, the latest China Manufacturing PMI indicates that the sector remains in contraction, and services growth continues to weaken. This will further weigh on the NZD as China's demand for New Zealand's exports, particularly in tourism and high-end food products, is likely to decrease.

FX View:

DXM: A Tool to Gauge Retail Sentiments

AUD/NZD Current Retail Long/Short Position

The DXM shows that 6% of traders are bullish, while the remaining 94% are bearish, reflecting the predominant retail sentiment. This sentiment offers a contrasting trading opportunity since retail traders tend to consistently lose money in the long term.

Seasonality Analysis: The Historical Movement of the Currencies  

AUD Futures’ seasonality movement

The seasonal pattern for the AUD suggests bullish momentum in the near term.

NZD Futures’ seasonality movement

The seasonal pattern for the NZD suggests bearish momentum in the near term.

Sources: Prime Market Terminal

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