FxWirePro: A Glimpse At Kiwis Short Relative Value Trades

In this write-up, we emphasize on short NZD trades versus basket of AUD and USD in cash. NZD has strengthened vs. USD this week amid a broader sell-off in the dollar and a result, the trade didn’t fare well this week. 

Kiwis upward momentum remains intact, with 0.6490  the next minor upside target.

The medium perspective remains at the mercy of global risk sentiment near term, with potential for gains to 0.6450 during the next few weeks. Further out, though, economic data releases over the next few months will be dire, potentially denting sentiment further. There’s potential to revisit 0.5900 during the next few months.

Idiosyncratic domestic developments were relatively light this week. The ANZ business confidence survey did register an improvement, consistent with confidence numbers seen more broadly globally. But still the levels of activity remain low.

Our short is premised on the prospects of an even more aggressive central bank policy given the RBNZ’s willingness to provide direct funding for the government’s large-scale borrowing needs and possibly QE which includes foreign asset purchases. 

On the AUD leg, it is worth noting that Lowe once again refuted negative rates this week and the expectation of a less activist policy relative to the RBNZ continues to keep us bullish on AUDNZD. Catalysts to watch over the coming week will be the global PMIs on Monday as well as the USDCNY fixes.

Activated shorts in NZD vs a 50:50 basket of USD & AUD at the end of April at an average spot rate of 0.771, and a stop loss at 0.794. Marked at -1.13%. Courtesy: JPM