Monday, October 19, 2015

Short NZD/CAD as easing pressure on RBNZ mounts - SocGen

FXStreet (Delhi) - Kit Juckes, Research Analyst at Societe Generale, suggests shorting the NZD/CAD pair as he thinks that the RBNZ will ease further and oil prices will continue to stabilize.

Key Quotes

“The New Zealand dollar has significantly out-performed the Canadian and Australian dollars in the 3 ½ years since the peak of global commodity prices. New Zealand’s exports of dairy produce are less affected by the downturn in Chinese demand Australia’s exports (e.g., iron ore) and less affected by the fall in oil prices than Canada’s exports, but the biggest driver of out-performance was monetary policy divergence as the domestic New Zealand economy adjusted to the rebuilding required after the Christchurch earthquake (February 2011).”

“Now however, New Zealand’s economy has slowed, inflation has fallen, and the RBNZ has more scope to ease than RBA or the RBC. The NZD/CAD rate can fall back towards 0.80 as oil prices stabilise and pressure on the PBoC to ease monetary policy and eventually allow CNY deprecation, build.”

“The recent squeeze of AUD/NZD longs has had a knock-on effect to NZD/CAD, allowing the recent divergence with relative rates. We look for NZD/CAD to top out close to current level and resume the downtrend, post the September lows. Carry is negative, but at 2.2% per annum, not too expensive.”

“This is a ‘long oil, short China’ trade, and will also tend to r=correlate to some degree with the USD trend. If oil prices remain under significant pressure, USD/CAD will spike, especially if the RBC surprises markets with further easing. A bounce in EMFX and in sentiment regarding China would trigger NZD out-performance for a while.”
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