Both the Australian and the New Zealand dollars have shown some relative strength and traded in ranges. What is the next direction for both?
ANZ sees both falling against the dollar and provides 4 arguments.
Here is their view, courtesy of eFXnews:
Australia and New Zealand Baking Group (ANZ) is out with a note presenting some feedback from a week of client visits in London. Among the main views in this note, ANZ is making the case for a strong USD and a weaker risk assets. The following are the key points constituting ANZ’s argument in this regard.
1- The Fed is moving towards tightening at some point — financial markets will find even small steps towards tighter liquidity problematic;
2- This reflects, among other things, the very strong diversification dynamic of the post-crisis period which has seen a shift out of liquid assets (treasuries, bunds and gilts, for example) towards less liquid assets (emerging markets, commodity currency bonds, high yield, infrastructure etc.);
3- China entered a deleveraging cycle last year, and while we expect it to be gradual, the most basic effect of this is that without offsetting policy action growth will continue to moderate over time;
4- In addition, as well as having a growth and monetary policy advantage, the USD also has an important current account advantage. This is the first US recovery in two decades where the current account has improved rather than deteriorated;
“These factors suggest a bias towards a strong USD and weaker risky assets. This includes the AUD, NZD and Asian currencies,” ANZ concludes.
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