Morgan Stanley analysts recommend selling NZD/USD with a target of 0.7000 and a stop at 0.8000. They entered the trade on Friday at 0.7850, they say, and are off to a good start with spot at 0.7777.
Morgan Stanley outlines the following in its rationale behind this call
1- In an environment of falling risk appetite and lower commodity prices, NZD looks vulnerable. The latest milk auction offered some support to the currency, but we are cautious that this could be temporary.
2- The hawkish tone at the latest RBNZ meeting is unlikely to be sustained, given below-target inflation amidst global deflationary pressures.
3- While the market continues to price in a nearly 65% probability of a rate hike in NZ in 2015, our economists’ see the RBNZ on hold for the rest of the year. With global disinflationary currents at the fore of market concerns and NZ CPI already down to the bottom-end of the target range at 1%y, we see the risk of rate expectations being priced out, especially if inflation later this month prints weaker than expectations.
4- The market is likely to price out the cuts it expects, and could even anticipate a probability of cuts. This will weigh on NZD.
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