Heading into the latest RBA meeting this week it made sense to be short the AUDNZD. There were three key reasons to expect AUD weakness against the NZD.

  1. China’s growth is slowing and the AUD tends to rise and fall with China’s economic growth.
  2. The key export commodities from Australia have seen lower prices. Iron ore, coal, and copper prices have all been tracking lower on global growth slowdown worries.
  3. The veteran economist Saul Eslake sees the RBA abandoning the 50 bps rate hike going forward. He expects unemployment to rise and GDP to miss the RBA’s projections.

However, when the RBA met it took a more optimistic view of the economic outlook. Yes, it recognised growing uncertainties, but it kept an overall neutral bias in the final analysis. So, this made sense to close the AUDNZD shorts. There was no clear fundamental reason for more AUDNZD downside.

Major Trade Risks: The major trade risk would be that the AUDNZD keeps falling despite the more neutral approach from the RBA.

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