AUD/NZD could drop to 1.05 before rising back to 1.10 – TD Securities

According to Mazen Issa, Senior FX Strategist at TD Securities, relative data surprise momentum has begun to move in favor of the Kiwi (NZD) and suggests that AUD/NZD has some room to slide. They think “a move towards 1.05 would be a good reassessment point to fade.”

Key Quotes: 

“The Antipodean currencies have languished over the last two years. Easier central bank policy has effectively removed the last vestiges of hope for AUD & NZD, as these currencies succumb to the USD carry king.”

“Absent an appreciable and sustained positive global macro impulse, these currencies will continue to languish in FX purgatory. We see clear risks that they continue to grind towards new cycle lows. While there is room for fiscal maneuvering, hedging costs and loss of yield advantage to the USD will likely continue to starve these currencies - NZD especially - of foreign capital flows.”

“Our expectation for these currencies to flat line over the next 6m could be too optimistic. Tactically, we see room for AUDNZD to temporarily dip before returning towards 1.10 by year-end.”