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Forex Flash: NZD/USD prices into event risks – Westpac

Positioning has been a major negative risk for the past two months for the NZD/USD, futures data showing speculators are historically long (highest since 2007). Moreover, the good local and global news is now fully priced. OIS pricing implies the first RBNZ hike of 25bp will be in January 2014, and our probability model is signaling a contrarian "sell".

“Consistent with our probability model's signal is our NZ data pulse model which is extremely high, reflecting the strong run of data since Q3, but should struggle to maintain this momentum. In addition, event risk has been elevated recently with the Italian election result uncertainty and the looming US sequestration issue.” warns the Westpac Strategy Team. The RBNZ has verbally (via the Governor's speech last week) and physically (via published NZD sales in November and December) signaled a directional bias.

Technically,” the break of a head-and-shoulders neckline (since 7 Feb) at 0.8315 signals a fall of around 2 cents magnitude. That targets around 0.8100, which converges with the major low on 16 Nov at 0.8053. Such a break would also end the uptrend since July 2012 so a larger reaction to 0.7800 is possible nut not our core view at this stage.” the team notes.

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