Goldman Sachs bets against USD
Has the US dollar lost a top position forever?
AUD vs. NZD: checking the strengths
Information is not investment advice
Despite the common belief that the Antipodean currencies are pretty much similar in their behavior, they still represent two independent countries with different monetary policy tools and economic situation. In other words, if two currencies were equal, the AUD/NZD pair would not make any sense. Luckily for us, the opportunities for this pair exist. This fact is proven by Goldman Sachs, which sees the Australian dollar stronger against its New Zealand colleague.
Reasons to buy the AUD
Among primary reasons for setting the cross pair higher, analysts from Goldman Sachs refer to the economic conditions of Australia.
One of the indicators looking favorable from Goldman Sachs' point of view is the trade balance of countries. Despite the slump to AUD 4.36 billion in February (pictured above), the trade surplus is still bigger than in New Zealand (NZD 594.1 million). A higher number indicates that more goods were exported. Therefore, the investment attractiveness of the Australian currency is higher.
The labor market protection is among other factors which push the Australian currency higher. Here, we need to take a look at the employment change in Australia. While forecasts for the March data were negative with a fall by 40 thousand jobs expected, the actual level outperformed with an increase of 5.9 thousand jobs. We may link this fact with lower exposure to tourism and less damage by the virus. The country managed to take necessary actions on time, limiting the virus outbreak. On April 20, there have been 6,547 cases in Australia and 10,797 cases in New Zealand.
The central banks' policies are also in focus. According to Goldman Sachs, the Reserve bank of Australia has a lower appetite for negative interest rates than the Reserve bank of New Zealand. During the last month, both regulators cut their interest rates to 0.25%.
Taking everything into account, Goldman Sachs predicts a quicker recovery in economic growth for Australia.
Setting the long-term levels for AUD/NZD
In this week’s update, Goldman Sachs sets the following long-term targets for the cross pair:
- 3 months - 1.12
- 6 months - 1.13
- 12 months - 1.15.
Will we see 1.12 in three months? According to the current technical picture, it is very possible. The pair bottomed down to its lowest levels in March but now has been stabilizing. However, we expect to give a more confident answer after the breakout of the upper border of the descending trading channel and the 1.0840 level.
On the weekly chart of AUD/NZD, we can see that the pair is indeed gaining strength. Last week it tested the 100-week MA and rose to the strong resistance at 1.0630. If bulls manage to break this level and cross the 200-week MA, the next key resistance will be placed at the descending trendline at 1.0730. After that, reaching the 1.0840 level will be in focus. On the downside, the support levels lie at 1.0370, 1.0280 and 1.0120.
Ekaterina Gorbatenko
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