In the weekly FX update from Morgan Stanley, they've taken a short kiwi position
On Tuesday Morgan Stanley shorted NZDUSD at 0.7180 with a stop at 0.7290. They're looking for a profit level of 0.6500. Their reasoning is that NZD weakens when US bond yields rise.
"Within G10 the currency prone to the largest adjustment in a USD rally is the NZD, in our view. This trade is more tactical in nature and less because the story has changed dramatically in New Zealand. In fact data held up well, with inflation surprising to the upside this week and dairy prices stabilised. Higher DM bond yields are the biggest risk for the NZD, as the country is reliant on foreign funding inflows. The risk to our view is the market pricing out expectations for a Fed hike this year."
They came very close to being stopped out yesterday with the kiwi topping around 0.7265. They have a very far out profit point at 0.6500 too.
NZDUSD daily chart
The issue I have with their reasoning is that it's going to take a very hawkish Fed embarking on a real steep path of hikes to put real weakness in currencies like the kiwi, not raising once a year. That situation is also not going to get US yields bouncing higher anytime soon either.
Good luck to them though and if they get a Fed hike in Nov or Dec, I'd certainly suggest they take some profit on that move if it's decent.
What do you guys and girls think of their trade?
