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Jun 05 - 12:55 AM

BNPP: Outlook and Targets for AUD and NZD

By eFXdata  —  Jun 04 - 04:30 PM

Synopsis:

BNP Paribas offers insights into the Australian Dollar (AUD) and New Zealand Dollar (NZD) as they navigate a landscape shaped by softening US economic data and persistent concerns over China's economic recovery. The forecast for both currencies remains stable into the end of 2024.

Key Points:

  1. Current Performance: Both AUD and NZD have recovered from their yearly lows, buoyed by weaker US economic indicators and a rise in risk sentiment. Despite these gains, long-term forecasts are unchanged with AUDUSD and NZDUSD expected to stabilize at 0.65 and 0.60, respectively.

  2. Australian Dollar Valuation: According to BNPP's CLEER™ model, AUD is undervalued relative to its fair value, primarily due to ongoing negative perceptions about China's economic prospects. This sentiment is unlikely to shift significantly unless there is a marked improvement in China's outlook.

  3. Support Factors for AUD: The AUD is likely to find some support from its correlation with equity markets and the market consensus that the Reserve Bank of Australia (RBA) will maintain current policy settings for an extended period.

  4. New Zealand Dollar Prospects: NZD offers the highest volatility-adjusted carry among G10 currencies, potentially making it attractive in environments favorable to carry trades. However, caution is advised due to underlying weak domestic fundamentals in New Zealand.

Conclusion:

While AUD and NZD benefit from a recovery in risk appetite and softening US data, their prospects are capped by external factors, particularly concerning China. The outlook for these currencies remains stable, reflecting a balanced interplay of supporting and limiting factors within the global economic context.

Source:
BNP Paribas Research/Market Commentary

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