FxWirePro: Buy Aussie and sell Kiwi targeting 1.12 area

We at FxWirePro, expect the Australian dollar to gain over the New Zealand dollar and that is largely due to monetary policy divergence. Economies are similar, small, export-driven and commodity dependent. While Australian economy depends on hard commodities such as iron ore, coal, gold, etc. the New Zealand economy relies more on soft commodities such as agricultural product. Both the countries have in recent days seen their key commodities recover in price and their exchange rate appreciate.

However, the Australian economy has weathered the storm much better due to unprecedented support from business areas other than mining. Drop min commodities’; price proved tougher for New Zealand but the economy was in better shape when the crisis hit.

In the short run, we expect the Reserve Bank of Australia to go for longer pause and might move towards rate hike, compared to Reserve Bank of New Zealand. So Aussie is likely to outperform the Kiwi.

Trade idea:

Buy Aussie against Kiwi at the current rate of 1.065 and at dips, targeting 1.125, with the stop loss around 1.025 area.