Following a severe post-RBNZ selloff, TD Securities analysts concentrate on AUD/NZD. They contend that the previous AUD/NZD upswing should be stopped by the beginning of the Reserve Bank of New Zealand (RBNZ) hiking cycle as opposed to a peaking Reserve Bank of Australia (RBA) cycle, but they anticipate short-term correction. The team uses a 1m 1.18/1.2050/1.23 AUD/NZD fly, citing past retracement trends and a narrow window of opportunity for future NZD-positive surprises in the near future.
Fly structure for anticipated consolidation
"AUD/NZD soar into RBNZ hiking cycle. The RBNZ meeting last week was unexpectedly hawkish.
Nevertheless, following this week's selloff, we anticipate some short-term spot consolidation. To convey this view, we enter a lengthy 1m 1.18/1.2050/1.23 AUD/NZD fly structure.
"Since July 2016, the AUD/NZD suffered its biggest one-day decline. In 69% of the 13 observations of one-day selloffs (20-year lookback) that surpassed the May 27 move, AUD/NZD would retrace higher throughout the following week.
"We think it is unlikely for AUD/NZD to tumble on further bullish NZD catalysts in the near term, with the remainder of the RBNZ hike cycle priced-in and little NZ data release in the next month."
"Unexpected increase in AUD/NZD vol driving spot price over the breakeven levels for the fly structure is a risk to the trade."
Fly structure for anticipated consolidation
"AUD/NZD soar into RBNZ hiking cycle. The RBNZ meeting last week was unexpectedly hawkish.
Nevertheless, following this week's selloff, we anticipate some short-term spot consolidation. To convey this view, we enter a lengthy 1m 1.18/1.2050/1.23 AUD/NZD fly structure.
"Since July 2016, the AUD/NZD suffered its biggest one-day decline. In 69% of the 13 observations of one-day selloffs (20-year lookback) that surpassed the May 27 move, AUD/NZD would retrace higher throughout the following week.
"We think it is unlikely for AUD/NZD to tumble on further bullish NZD catalysts in the near term, with the remainder of the RBNZ hike cycle priced-in and little NZ data release in the next month."
"Unexpected increase in AUD/NZD vol driving spot price over the breakeven levels for the fly structure is a risk to the trade."
