BNPP: Further retreat in AUDNZD likely

The minutes to the RBA’s July meeting, released overnight, did not provide any surprises with the RBA sticking to its patient easing bias as it waits to assess the impact of the recent rate cuts. A catalyst for the AUD the catch up with the recent weakness of the NZD and CAD is more likely to come from Wednesday’s CPI release or RBA Governor Stevens’ speech. Our positioning analysis indicates that short AUD positioning is light with a score of -10 . In contrast, markets remain heavily priced for RBNZ easing and very short NZD. The NZD firmed sharply on Monday after Prime Minister Key’s comments on Monday highlights the vulnerability of a further squeeze higher on any disappointment around this week’s policy meeting. Rates markets are fully pricing a rate cut this week and 70bp of cuts by the end of the year so it would probably take a marked shift to an even more dovish stance to push these expectations lower, while any suggestion that rate cuts will not continue beyond this week could see the NZD extend gains. We continue to see scope for further retreat in AUDNZD.

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