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Feb 13 - 10:55 AM

Nomura: Contrarian Strategy with Long AUD/NZD Position

By eFXdata  —  Feb 13 - 09:30 AM

Synopsis:

Nomura proposes a contrarian trading strategy by going long on AUD/NZD, anticipating potential market adjustments following recent hawkish expectations set by the Reserve Bank of New Zealand (RBNZ). The market has seemingly adjusted for a more hawkish RBNZ stance, especially after remarks from the RBNZ's chief economist, which has led to a widening of the two-year swap spreads in favor of the NZD. However, Nomura's analysis suggests that the current market positioning might be overly optimistic regarding the RBNZ's policy direction.

Key Insights:

  • Market Positioning: Recent shifts in market expectations towards a more hawkish RBNZ stance have influenced the AUD/NZD pair, with swap spreads widening in favor of the NZD.

  • Contrarian Approach: Nomura recommends a contrarian strategy by going long on AUD/NZD, suggesting that the market may have overpriced the likelihood of RBNZ hawkishness.

  • RBNZ Rate Cut Expectations: Despite the hawkish signals, Nomura maintains its forecast of 100 basis points in rate cuts from the RBNZ throughout the year, diverging from market expectations of potential rate hikes.

  • Strategy Rationale: The recommendation to go long on AUD/NZD is based on the belief that the RBNZ's actual policy actions will be more accommodative than currently anticipated, providing an opportunity for AUD/NZD to appreciate as market expectations adjust.

Conclusion: 

Nomura's recommendation to adopt a long position on AUD/NZD serves as a contrarian play against prevailing market sentiments that have skewed towards anticipating a hawkish RBNZ. The strategy hinges on the expectation that the RBNZ will implement rate cuts contrary to current market pricing, leading to potential gains for traders who position accordingly. This approach emphasizes the importance of scrutinizing central bank signals and market expectations to identify trading opportunities that diverge from the consensus.

Source:
Nomura Research/Market Commentary

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