AUDNZD: relative value and its quirks

[Shadow Trader]

AUDNZD is a cross between two neighbouring economies, and it trades like a relative value instrument. Ranges are usually narrow, spreads comparatively wide, and moves depend on the gap between Australian and New Zealand fundamentals.

Both currencies respond to similar global drivers, so much of the common risk factor cancels out. What remains is the difference: RBA versus RBNZ policy, commodity mix, local data. The pair can range for long periods and then trend for weeks.

For scalpers, the main challenge is cost. A spread of 3 or 4 pips against a daily range of 60 is a hefty hurdle. Liquidity thins outside Asian hours, and spikes can occur on small orders.

Mean-reversion strategies are popular here, but the occasional trend can run over them. Using hard stops and modest size is crucial.

Because it's driven by a different mix of factors from most pairs, it offers diversification, though with the cost of a wide spread.

Has AUDNZD been traded, and does the spread allow a profitable scalping approach?