Maintain armoured anti-cyclical spotlight through NZD/USD shorts on most likely prolonging of RBNZ’s dovishness

The RBNZ is expected to remain on hold through this year at least, and that seems to quite agreeable. As a result, that should cap 2yr NZ yields at 2.30%, while a slight loss of economic momentum, both in NZ and in developed economies could see the lower bound at 1.95% tested occasionally as markets flirt with a rate cut.

In view of that, contemplating the 2019 outlook, it has been adopted a cautiously defensive position in part expressed through short NZDUSD. While we uphold our NZD shorts given expectations of a dovish-to-unchanged monetary policy and also given its sensitivity to global growth. The main event this week for New Zealand was the soft 4Q CPI report. 

We don’t think this justifies a rate cut from the RBNZ in 2019, even though we do expect downgrades to inflation (mostly on oil) and growth and thus a dovish spin on the outlook (4Q CPI not quite the spark for the RBNZ). Please be noted that the AED we recommended back in November, we still retain short NZDUSD exposure in the outright spot. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly NZD spot index is inching towards -153 levels (which is bearish), while hourly USD spot index was at 91 (bullish) while articulating (at 09:16 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex