Westpac's weekly 'high conviction FX trades based on our macro, model and technical views'
WPAC say they are:
- Constructive NZD and USD
- Neutral AUD, EUR and JPY
- Negative GBP and CHF
Conviction levels on the USD and NZD have firmed
- Our model score drives a good amount of the NZD enthusiasm, led by steady gains in dairy prices
- The week ahead will see a good amount of economic news, with a couple of consumer confidence surveys, PMIs, and building and manufacturing partials to Q3 GDP (which is released on 22 Dec)
- We estimate Q3 GDP at a decent 3.6% yoy, above the 2.9% average of the past five years
- We leave a buy order at 0.7130, stop 0.7060.
Our USD score is buoyed by our model too
- that signal keying off seemingly perpetual growth in yield support, at the time of writing the 2yr Bund-Tsy spread hit 16yr+ lows (-191bp) while the 2yr JGB-Tsy spread hit 8yr+lows (-134bp)
- The caution is that we are in a fiscal policy news vacuum until Trump's 20 Jan inauguration and our US data surprise index suggests all the good news is priced in, for the time being.
CHF remains the favoured short, yet again
- Italy's issues have not triggered any pronounced safe haven CHF demand, but any such moves will be met by sound SNB action
- Recent price data shows that the risk of a slip into further deflation persists
- The SNB's continuation of NIRP will maintain the bias for a softer CHF
- We buy USD/CHF at 1.0020 stop 0.9920.
