Australian Dollar Forecast to Advance v New Zealand Dollar by BofA Strategists

A new tactical recommendation from Bank of America Merrill Lynch Global Research says the Australian dollar will rise against the New Zealand dollar.

Strategists at Bank of America (BofA) are bullish on the prospects of the Australian dollar against the New Zealand dollar. However, both the NZD and AUD are forecast to decline against the US dollar.

BofA’s technical analyst MacNeil Curry, says:

“Across currencies, the US $ continues to outperform. Indeed, on a month-to-date basis, only the TWD is up against the Greenback (according to BBG WCRS). In this environment, we are bearish AUD/$ and NZD/$.”

That said, Curry does reiterate his previously held view that downside in the Australian vs US dollar should prove limited, with the confluence of support between 0.7378/0.7331 (14-year channel base and 10m channel base) likely to provide the building blocks for a long-term base and turn higher.

“In contrast, NZD/$ has significant downside potential. While 0.7000/0.6955 should hold initially, long term, it could fall to the 200m avg. at 0.6588 and potentially as far as 0.5788/0.5631,” says Curry.

Given this backdrop, BofA are happy to reiterate their bullish AUD/NZD view, "the impulsive advance from 1.0020 says that the long-term trend is turning bullish, ultimately targeting 1.3566."

“Dips are corrective and should be limited to 1.0566/1.0357. A break of intra-day channel resistance at 1.0750 says the correction is over and that the long-term uptrend is resuming. We would look to buy that break,” says Curry.

• At the time of writing the Australian to US dollar exchange rate (AUDUSD) is at 0.7659.
• The New Zealand to US dollar exchange rate (NZDUSD) is at 0.7105.
• The Australian to New Zealand dollar exchange rate is at 1.0783.

BNP Paribas Take an Opposing View

While Bank of America are backing the Aussie dollar higher againt the Kiwi, the opposite position is preferred by analysts at BNP Paribas who have also issued clients with a strategic update.

BNP cite Australian private capex expenditure which declined by more than expected in Q1, falling 4.4% (vs -2.2% consensus) as a reason to be bearish on the AUD.

The capex expenditure plans for the upcoming financial year have shifted very slightly higher, but remain subdued.

"The data underscores the continued challenges to the Australian domestic economy and suggests that the interest rate market will continue to price a high likelihood of further cuts from the RBA. We remain short AUDNZD with a 1.0340 target and continue to expect an adjustment in relative positioning, to help drive the cross lower," says a note on the matter.

BNP Paribas positioning indicator shows a modest score of -4 for the AUD and elevated score of -35 for the NZD (on a scale of -50 to +50) which in our view is out of line with fundamentals.