NZD: Fundamental forces back in play - BNZ
The NZD showed signs of mild recovery last week, with gains around 0.5-1% on the key major crosses and selling pressure brought on by domestic political fears now appears to be largely exhausted and fundamental forces might now be back in play, according to Jason Wong, Senior Markets Strategist at BNZ.
“CFTC net speculative positioning data showed the first net short positions in the NZD since June. Speculative accounts have been active sellers of the NZD over the past few months and the short positioning suggests a reduced hurdle for the currency to recover further. The NZD still looks modestly oversold to us on a short-term view.”
“We wouldn’t rule out a return to a USD0.70 handle this week. The key local release will be Thursday’s Monetary Policy Statement. Since the formation of the new government, the market has priced in a softer stance of NZ monetary policy, reflected in a pushing out of the first rate hike this cycle to February 2019, lower short-dated swap rates and a sell-down of the NZD. On that basis, there will be some traders out there expecting a more dovish stance from the RBNZ, a view we strongly disagree with.”
“A higher inflation track could lead the Bank to build in a projected earlier beginning to the tightening cycle. Or the Bank could simply underline the skewed risks to inflation, without wanting to make a judgement at this stage as to the outlook for rates. Whatever, the tone should come across as more hawkish (or less neutral) than the previous statement. We expect the Statement to help underpin the NZD this week.”