Synopsis:

Credit Agricole advises maintaining long positions in AUD/NZD as it anticipates the cross to approach 1.12, particularly in the context of this week's RBA meeting. They highlight that RBA Governor Michele Bullock is facing a significant test of credibility given current economic indicators.

Key Points:

• RBA's Credibility Test: With inflation above forecasts and unemployment below expectations, Governor Bullock must balance maintaining credibility with cautious policy guidance.

• Neutral Bias Expected: Despite pressures, the RBA is likely to maintain a neutral stance on interest rates, considering softening consumption data and the upcoming impact of mortgage roll-overs at higher rates.

• Bullish on AUD/NZD: Credit Agricole remains bullish on AUD/NZD, citing it as the preferable strategy to capitalize on a strong AUD outlook, despite aggressive market pricing of a potential RBA rate hike by September.

• Global Economic Context: The firm’s outlook considers the robust performance of the US economy and the strength of the USD, which supports their strategy on AUD/NZD.

Conclusion:

Credit Agricole advises staying long on AUD/NZD, anticipating that upcoming developments and economic releases will reinforce a bullish scenario for the Australian dollar, particularly in comparison to the New Zealand dollar.