AUD/NZD: better bid, target 1.1050
|Currently, AUD/NZD is trading at 1.0900, up 0.58% on the day, having posted a daily high at 1.0909 and low at 1.0829.
AUD/NZD has been better bid with commodity prices supporting the Australian economy and driving demand into the Aussie while the kiwi is weighted by a fall in daily prices.
Analysts at Westpac explained that dairy prices are poised to correct further, thanks to a recovery in supply globally. "NZ supply has been boosted by good growing conditions in the second half of the season, to the extent that Fonterra has repeatedly revised its GDT offer quantities higher," the analysts went on, adding, "In contrast, iron ore prices should benefit near-term on Chinese demand as high steel margins keep production at steel mills up."
The analysts offered a buy recommendation for AUD/NZD on the commodity price differential as follows: Entry: Buy 100% at 1.0855, Stop: 1.0780, Target: 1.1050
Rationale: "This cross has been undervalued relative to interest rates and commodities for some time. However, sustained strength in iron ore combined with fresh weakness in dairy has attracted AUD/NZD bulls back into the game
Monetary policy: "Both central banks are on hold for the foreseeable future. The RBNZ has been more emphatic about remaining so for the next two years. In contrast, the RBA’s tone has sounded more upbeat following a string of decent data outturns. Cognisant the cross has already had a good run over the past month and will need to correct soon, we prefer not to chase the move but rather buy on dips."
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