Buy AUDNZD – TDS

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Mark McCormick, North American Head of FX Strategy at TD Securities, is recommending to enter a long AUDNZD position (spot reference: 1.0520), for the target price of 1.0950, while maintaining a stop-loss of 1.0300.

Key Quotes

Rationale

  • Given the price action, it is time to determine whether the next move is a sustainable break below 1.05 or a good buying opportunity to position for a retest of 1.10. We choose the latter.
  • Front-end spreads, for instance, argue the cross should be trading above 1.08 on an 18m look back window. That also dovetails with the signal from relative yield curves (2s10s). This pair also cares a lot about terms of trade. The correlation has broken down a bit in the short-run but a longer time series history also implies a level around 1.09.
  • Our China-based factor model also puts AUDNZD around 1.06, which could start to benefit if growth and trade tensions start to improve. Finally, our implied-CTA model also implies that the market is leaning short AUDNZD.”
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