China Holds Loan Prime Rates Steady in January as Market Expectations Align 
Brazil Holds Selic Rate at 15% as Inflation Expectations Stay Elevated 
Bank of England Expected to Hold Interest Rates at 3.75% as Inflation Remains Elevated 
ECB Signals Steady Interest Rates as Fed Risks Loom Over Outlook 
Fed Confirms Rate Meeting Schedule Despite Severe Winter Storm in Washington D.C. 
U.S. Prosecutors Investigate Fed Chair Jerome Powell Over Headquarters Renovation 
Thailand Economy Faces Competitiveness Challenges as Strong Baht and U.S. Tariffs Pressure Exports 
Bank of Korea Expected to Hold Interest Rates as Weak Won Limits Policy Easing 
BOJ Holds Interest Rates Steady, Upgrades Growth and Inflation Outlook for Japan 
U.S. Urges Japan on Monetary Policy as Yen Volatility Raises Market Concerns 
The US Presidential election tonight has been center of attraction for the markets. The results should become clear by Wednesday. While the FOMC member Evans speaks on monetary policy; his stance on the latest payrolls data will be of interest.
Targets 0.6950 or lower as long as the RBNZ cuts to 1.75% in November and the Fed tightens to 0.625% in December, as we expect. (13 Oct).
The strategy:
We target 0.70, based on an assumption the Fed will hike in Dec and the RBNZ will cut in this week's meeting. However the persistent backdrop of global demand for high-yielding currencies is strong - if the Fed either doesn’t hike or signals very gradual tightening, then 0.75+ is likely instead.
Contemplating all these underlying factors, to arrest these downside risks we advocate initiating longs in 1m (1%) ITM put option with net delta -0.71.
A higher (absolute) Delta value is desirable for an option buyer, whilst a Delta close to zero is desirable for the option seller; a buyer wants their option to become more valuable whilst a seller wants the option to become less valuable.
Rationale: Further dollar rally into December FOMC
The market is still underpricing the likelihood of a Fed hike by year-end. We expect further gradual dollar gains into the December FOMC meeting.
At the same time, the RBNZ is widely expected to cut rates for the final time in November, and that is already priced in.
Moreover, NZD/USD technicals are negative with the failure to regain the neckline of the head-and-shoulders pattern above 0.72. Short Kiwi would work particularly well if broader financial volatility were to rise from here.
Risk/return profile: No Fed cut and continued pro-carry macro environment, the key risks to the trade are that the RBNZ does not cut rates in November, the Fed does not hike by December, and the pro-carry global macro environment persists. The divergent policy expectations on the RBNZ and Fed are crucial for the trade to work.
