This particular pair is likely to move fast unlike our call in EUR/GBP or GBP/CHF as we expect strong divergence in performance. For example in the case of EUR/GBP, we have given a call that it would reach 0.96 but we also expect Euro to decline against the dollar to test the parity. So both leg moving in the same direction will make it a slow moving one. But in this case, we expect the euro and the kiwi will move in opposite direction.
Reasons are simple,
- Given the current circumstances, Kiwi is a better safe haven that the Euro. If the UK referendum eventually leads to Brexit, the euro will bear the larger burden than that of the kiwi.
- Moreover, we sense that there has been a major shift in the commodities, which are the best performing asset class this year.
- In addition to that, kiwi’s exposure to essential agricultural commodities makes it and the whole country (New Zealand) a better bet over the longer horizon.
- Moreover, Reserve bank of New Zealand (RBNZ) will remain more hawkish when compared to the European Central Bank (ECB).
- New Zealand’s biggest weakness as of now is weaker commodities prices which we suppose will recover over time and farms will be able to reduce their break-evens in the meantime.
- Kiwi bonds offer much better yields compared to the whole of the Eurozone.
While we are confident that the target is achievable, biggest fallout in this call is that we have been a bit late. However, we wanted the dust to settle post-referendum.
Trade idea –
- Sell Euro against Kiwi at current price 1.556 with a target around 1.28 area and stop loss around 1.69. We don’t expect the pair EUR/NZD to correct beyond 1.63, however looking at the current uncertainties and volatility we would prefer a bigger stop loss for the time being.
