FxWirePro: Jump on the bandwagon and keep RBNZ at bay via directional options play

All NZD traders focus shifted onto RBNZ that is scheduled to announce its monetary policy after the inflation expectations in New Zealand decreased to 2 pct in the Q4’2017 from 2.10 pct in the Q3’2017. While GDT price index likely to be out at 09:00 UTC which is crucial for NZD to be tracked.

Circumstances around tomorrow's RBNZ meeting are the polar opposite:

If the RBNZ remains firmly on hold, as we expect, and the US dollar rises on the delivery of a Fed interest rate rise in December, then NZDUSD should fall to 0.67 by year-end. 

NZD has taken a severe beating around the election results, investor pre-positioning is heavily received NZ rates and short NZD, and risks are that the Bank delivers a less-dovish-than-expected statement.

EURNZD is the NZD-cross that screens the best value in gamma to benefit from such a turn of events (refer above chart; 2W ATM 8.1 vs. hourly realized vol 1-wk 9.0, 4-wk 9.5) and is worth holding into the event.

Directional plays for a tactical NZD bounce could take the form of either 1M 1.64 EUR put/NZD call one touch (5X gearing off spot ref. 1.6705) or 1M 1.671.65 put spread (3.5X).

Our RBNZ outlook (on hold throughout 2018) is anchoring short-maturity interest rates and should keep 2yr swap rates in a 2.10% to 2.50% range, as long as inflation remains below 2%.  Longer maturity rates will largely follow US rates.

EURNZD spot fx price curve has continued to prolong its bearish swings, tumbled from the highs of 1.7215 to the current 1.6707 levels.

Currency Strength Index: FxWirePro's hourly NZD spot index has flashing at 72 (which is bullish), while hourly EUR spot index was at -91 (bearish) while articulating at 10:54 GMT which is line with our above trade recommendation. For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex.

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