Key Moments
- TD Securities characterizes recent AUD/NZD softness as a short-term correction within an existing upward trend.
- The firm highlights supportive 2-year rate differentials and a high-frequency fair value model indicating AUD is undervalued versus NZD.
- Strategists favor bullish AUD/NZD exposure and point to 3-month seagull option structures as a potential diversification tool.
TD Securities Maintains Constructive View on AUD/NZD
TD Securities reiterates a positive stance on AUD/NZD, arguing that the latest decline represents a temporary retracement rather than a shift in the broader trajectory. The institution continues to see the cross supported by 2-year rate spreads, fair value metrics, and central bank policy expectations.
The bank notes that, in its assessment, the 2-year interest rate differential still leans in favor of higher AUD/NZD levels. Its high-frequency fair value (HFFV) framework also indicates that the Australian Dollar is trading below what the model suggests against the New Zealand Dollar.
Valuation, Rates, and Policy Expectations
In support of its constructive view, TD Securities emphasizes that relative valuation and rate dynamics both underpin the case for a renewed move higher in AUD/NZD. The firm points out that, following a global rates selloff, markets are currently pricing in around three additional rate increases in 2026 for both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ).
According to the bank, the existing pricing for RBNZ policy tightening appears stretched when compared with expectations for the RBA. TD Securities attributes this to what it views as a considerably stronger labor market backdrop in Australia, as well as recent commentary from RBNZ leadership.
Central Bank Signals and Market Pricing
TD Securities references recent communication from the RBNZ as another factor shaping its outlook. The institution points to what it describes as dovish signals from RBNZ Governor Breman in the latest remarks, which it believes contrasts with the anticipated direction of RBA policy.
Against this backdrop, the firm expects the RBA to push ahead with additional tightening at its upcoming meeting in May. In its view, this divergence between RBA and RBNZ expectations is supportive for the AUD relative to the NZD.
| Factor | TD Securities’ View on AUD/NZD |
|---|---|
| Recent price action | Seen as a short-term pullback within an ongoing uptrend |
| 2-year rate differential | Assessed as favoring higher AUD/NZD |
| HFFV (high-frequency fair value) model | Shows AUD undervalued versus NZD at current levels |
| 2026 rate hikes priced | Around 3 additional hikes for both RBA and RBNZ |
| RBNZ pricing vs RBA | RBNZ hike expectations viewed as overdone relative to RBA |
| RBA policy outlook | TD Securities expects further rate hikes at the next meeting in May |
| Proposed strategy | Bullish AUD/NZD positioning, including use of 3-month seagull structures |
Trading Implications and Strategy
TD Securities suggests that AUD/NZD may appeal to investors seeking foreign exchange opportunities with less direct sensitivity to developments in the Middle East. The bank interprets the recent downturn in the cross as a move out of overbought conditions instead of a structural reversal.
“We remain bullish AUD/NZD on the back of valuation, central bank outlook, and expectation for a resumption of the year-to-date uptrend. 3m seagull structures in AUD/NZD could serve as a cheap diversification of FX”
The firm expresses a preference for straightforward long exposure in AUD/NZD, while also highlighting 3-month seagull option structures in the pair as a way to diversify foreign exchange positioning.
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