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We have made no changes to our year-ahead AUDUSD forecasts and still see AUD at USD0.65 by Jun-20 on the back of a weaker growth backdrop for the global economy and our expectation of further easing from the RBA in H1’20.
We maintain the bearish stance on Kiwis dollar, forecasting 0.62 levels. We emphasized in the recent past that, after initially leading the easing pack, NZD had begun to drift higher
reflecting a convergence of dovish policy stances (particularly with respect to the Fed and RBA).
This week we opted for some intra-week adjustments to our portfolio by locking in profits on our NZDUSD short ahead of a slew of important central bank catalysts and given already-large moves in markets in less liquid conditions. We also closed our existing AUDJPY short near flat, but kept both the beta to AUD and the overall defensive tilt of the portfolio distinctly intact by rotating into short AUDUSD in cash, which also keeps us slightly net long USD position open as well. These moves are were made in light of potential bounces in risk ahead of a number of likely dovish central bank events and some August seasonality dynamics. The broader composition of the portfolio continues to position for a grind lower in growth-sensitive currencies including AUD and NZD as the global growth continues to underwhelm and the trade war drags on.
Locally, both AUD and NZD sit in the midst of an ongoing central bank easing cycle, while growth and inflation outcomes are still trending soft. Over the medium term, these should be exacerbated by ongoing external dynamics from moderating China growth, trade war spill-over and poor historical performance during Fed easing cycles.
Each are also subject to important structural adjustments taking place over the medium- term. While the domestic calendars look somewhat light in the near-term, especially in light of the RBNZ’s surprise 50bp cut, the overall direction for the antipodeans is likely lower but now through a slow and potentially uneven grind with both central banks on hold for at least the next couple months.
Trade tips:
Book profit on NZDUSD cash short intra-week. Marked at +1.99%
Square-off AUDJPY shorts in cash. Marked flat.
Sold AUDUSD intra-week. Marked at +0.54%.
Hold a 6m NZDJPY put spread. Paid 1.07% on 31stMay. Marked at +1.80%. Courtesy: JPM
