AUD/NZD: Retracement viewed as opportunity to initiate long positions – TD Securities

TD Securities Maintains Positive Outlook for AUD/NZD

TD Securities continues to hold an optimistic view on the Australian Dollar against the New Zealand Dollar, interpreting the recent decline as a temporary adjustment within a broader upward trend. The institution highlights favorable two-year interest rate spreads, its high-frequency fair value model indicating the Australian Dollar is undervalued relative to the New Zealand Dollar, and a more assertive policy stance from the Reserve Bank of Australia. The bank recommends maintaining a bullish position and suggests considering three-month seagull options for added diversification.

Uptrend Supported by Valuation and Rate Differentials

The recent dip in AUD/NZD is seen as a short-term correction in positioning, rather than a reversal. Factors such as attractive valuations, supportive two-year rate differentials, and a more hawkish RBA are expected to reinforce the ongoing upward movement.

For investors seeking currency trades less affected by geopolitical tensions in the Middle East, AUD/NZD is presented as a suitable option. The recent weakness is viewed as a brief retreat from overbought levels, not a change in the prevailing trend. The two-year rate spread continues to favor a stronger AUD/NZD pair.

TD Securities’ high-frequency fair value model also suggests that the Australian Dollar remains undervalued compared to the New Zealand Dollar at current prices. Following the global bond market selloff, markets are now anticipating approximately three additional rate hikes in 2026 for both the RBA and RBNZ.

The bank believes that expectations for further rate increases by the RBNZ may be excessive compared to the RBA, especially given Australia’s comparatively resilient labor market. Recent dovish remarks from RBNZ Governor Breman this week support this perspective, while TD Securities anticipates the RBA will continue raising rates at its upcoming May meeting.

Overall, the bank remains positive on AUD/NZD, citing attractive valuations, central bank policy outlooks, and the likelihood of the uptrend continuing through the year. Utilizing three-month seagull strategies in AUD/NZD is suggested as a cost-effective way to diversify foreign exchange exposure.

(This report was produced with assistance from artificial intelligence and subsequently reviewed by an editor.)