Where to for AUD and NZD? – Deutsche Bank

By FXStreet Robin Winkler, Strategist at Deutsche Bank, suggests that their short AUD and NZD have suffered from a sharp improvement in risk appetite thanks to benign signals from the Fed and China.

Key Quotes

“At least until the June FOMC meeting, the Fed’s accommodation of global risks may continue to bolster carry currencies. However, lifting our year-end forecasts by 8 cents to AUD/0.68 and NZD/0.63, the cycle lows, we retain our bearish bias in the medium term.

First, carry conditions are likely to deteriorate again. FOMC members have coalesced around two rate hikes this year. This outlook appears to factor in greater global risks than the market perceives at the moment and should therefore prove robust if market concerns over China were to resurface in the second half of the year. Conversely, if China were to remain stable, the Fed could quickly turn more hawkish again. For the Antipodes the risks therefore remain skewed toward short-term yield spreads against the US tightening again, even if the Reserve Banks refrain from cutting rates below 2%.

Second, the commodity slump is far from over. Our commodity strategists expect iron ore prices to fall back to $40 later this year, consistent with AUD/USD around 0.70 on …read more

Source:: FX Street