Westpac's Trading Strategy: A Triple Bet on Antipodean Currencies
Westpac's dealing desk is making a bold move, placing three interconnected bets on the antipodean currencies, specifically the Australian Dollar (AUD) and the New Zealand Dollar (NZD). The strategy is centered around the idea that the US dollar's dominance is weakening, and these currencies are poised to take advantage.
Trade #1: The Aussie Juggernaut
Westpac is bullish on the AUD, with a long position in an AUD basket started at 100.0 on October 29th, targeting 105.00. Despite market expectations of RBA tightening, Westpac believes there's limited downside risk. This optimism is based on several factors: the Chinese Yuan's gradual depreciation enhances Australia's competitiveness, commodities remain stable, and the MSCI ex-US equities index shows a classic post-holiday boost.
Trade #2: The Dollar Short
In contrast, Westpac is shorting the US Dollar (USD) basket, initiated on December 11th at 100.0, with the same target of 105.00. They dismiss recent positive sentiment around the USD, attributing it to temporary factors. Westpac highlights deeper structural issues, including valuation concerns and a potential reassessment of the geopolitical order post-Davos, which could restore long-term USD credibility and raise doubts about US asset allocations.
Trade #3: The Kiwi Comeback
Westpac's confidence in the NZD is evident in their successful prediction of the January dip to 0.5711. Followers of their original buy recommendation are enjoying 6% gains. They now aim to capitalize on any pullback to 0.5880, targeting 0.6100 or higher, with a stop-loss at 0.5830. This strategy combines a bearish view of the USD with positive economic indicators from New Zealand, such as GDP nowcasts and their economic pulse models, suggesting a potential recovery.
Despite a risk-off day, the NZD's resilience is notable. Westpac's strategy showcases a comprehensive approach to currency trading, considering both fundamental and technical factors, and it's an intriguing strategy to watch in the coming months.
