Seasonal strength in the NZD is reason to hold off entering AUD/NZD long until early next year – ANZ

The Australia and New Zealand Banking Group (ANZ) recently came out with its analysis on the AUD/NZD pair. The bank considers the pair’s recent run-up as similar to the ‘Santa rally’, the year-end buying, which in turn pushes them to avoid favoring any long positions until early next year.

Key quotes

“A ‘Santa rally’ is the tendency for equity markets to strengthen into yearend. In this piece, we explore the extent of this seasonal support in equity markets, and whether it extends to currencies.”

“For equities, we found Santa comes bearing gifts more often than not. Australia’s All Ordinaries finished the holiday period higher than it started around 75% of the time.”

“For FX markets, the pattern is less clear, but the NZD appears to be a bigger beneficiary of year-end buying than the AUD. The AUD/NZD cross has ended the holiday period higher only nine times in the last three decades (a 30% hit rate).”

“We still like AUD/NZD as a relative economic play, however seasonal strength in the NZD is reason to hold off entering any long positions until early next year.”

“The near-term fortunes of the AUD are delicately poised.”

“On one hand, the global outlook is improving amid an improvement in liquidity conditions. On the other hand, the domestic labour market appears to be softening alongside a more cautious consumer.”

“Despite these domestic challenges, we think what happens offshore is more likely to determine the year-end trajectory for the AUD.”