Some commentary on the RBNZ yesterday and the implications for the NZD
These are not surprising comments, we had the RBNZ yesterday update their outlook and got a sharp NZD move.
More now from TD amd MS, via eFX
Morgan Stanley:
NZD was trading 6% above the RBNZ's expectations, causing it concern and to move to support easing soon. In particular, the bank stated that "A decline in the exchange rate is needed."
This should add downward pressure for NZD, and we promote long AUDNZD positions and short NZDCAD. The risk-supportive element from expectations of fiscal easing in Japan could add upside for AUD as the markets are not pricing in as much easing from the RBA, instead waiting for Australia's inflation print at the end of the month.
And, TD:
We think US data and Fed pricing is the first trigger that could shakeup market pricing. The chart shows one of our preferred metrics for market positioning (the max/min of net specs over the past three years). It shows large outstanding longs in CAD, JPY and CHF but also a build-up in AUD and NZD over the past month. The market also remains underweight USD relative to the past three years, increasing scope for squeeze on better US data.
Besides the Fed, we think policy and data events from Japan and the UK could also trigger a shift in sentiment. For one, those looking for helicopter money in Japan may be disappointed while a turn in UK data could lead to a rise in risk aversion as economic impact of Brexit unfolds.
Finally, we cross check this data with our HF fair value model in the second chart. The model shows that most European currencies are cheap but also that AUD and NZD are expensive. NZD looks the most overdone and we continue favour shorts on the crosses.
