TD Research discusses AUD/NZD outlook and prefers buying dips around current levels targeting a move towards.
"For AUDNZD, it is that time to start thinking about 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 believe it is the latter," TD argues.
"To start, the pair is mostly trading where it should. Our HFFV gauge sits at 1.06 and most of the moves in the past few months can be explained through cyclical drivers. Under the hood, the most statistically significant components of the model are 2y spreads, growth expectations and terms of trade. Thinking ahead, we suspect a few of these should turn in AUD's favor while some imply upside in the cross.
Our China-based factor model also puts AUDNZD around 1.06 (r-squared 40%), leaving a stimulus to offer upside support," TD adds.