AUD/NZD: Bias to remain bearish - Nomura

Peter Dragicevich, global FX strategist at Nomura, expect the New Zealand dollar to continue to outperformed and they don’t see the recent recovery in AUD/NZD to be a sustained reversal. 

Key Quotes: 

“The market’s pre-occupation with “Trumponomics” and the broader USD weakness supported both AUD and NZD over January, but from a relative-value perspective, NZD has outperformed. We expect this bias to remain, and do not believe the lift in AUD/NZD on the back of the headline rise in the New Zealand unemployment rate in Q4 2016 will be the start of a sustained reversal higher.”

“In our view, the softer headline unemployment result has generated a short-term position adjustment, not a fundamental shift. As illustrated by the recent IMM data, market participants have a slightly larger net  long NZD exposure compared with AUD positioning.”

“In broad terms, the relative fundamental economic outlook remains in favour of NZD. Moreover, we believe NZD should remain somewhat more insulated to any potential lift in market volatility and/or increased focus on the prospects for Asian growth as market thoughts around “Trumponomics” evolve.”

“Based on our view, and given the still-low level of implied volatility, we believe downside structures in AUD/NZD may present attractive opportunities.”