FxWirePro: NZD/CAD rejects again at range resistance – Stay short on valuation, disinflation, and Chinese Slowdown

Yesterday, in our technical write up we stated that the stiff resistance at 0.9552, now see the bull-swings that have rejected at the same levels once again after RBNZ’s OCR cut to keep it at 2.00%.

Please refer below weblink for more reading on this:

http://www.econotimes.com/FxWirePro-NZD-CAD-bulls-spike-above-DMAs-RBNZ-hinders-momentum-while-crude-weighs-on-CAD-depreciation-%E2%80%93-%E2%80%9CCash-or-nothing-binaries%E2%80%9D-to-trade-261450

The pair has exactly tested the resistance at 0.9567 and dropped to continue the previous trend.

Well, we reckon that NZD remains overvalued, while milk powder prices have stayed depressed and inflation in New Zealand has surprised to the downside.

The Canadian dollar offers better value, and should continue to benefit from more stable crude oil prices and the US economic recovery.

New Zealand is suffering from disinflationary pressures, with reported CPI inflation well below the RBNZ’s 1-3% target range. It is also more exposed to China growth risks than Canada.

Brexit aftermath and a re-emerging oil glut percolate in the background. We'll focus on this last issue this week since the signals from commodity fundamentals are mixed, and because many investors consider a relapse in commodity prices to be one of the most material risks to the global carry trade.

Slightly negativity or consolidation phase on oil during Q3 & Q4 of 2016; optimism or safe haven sentiments on bullion currently and into 2017; negative on base metals and iron ore into 2017, and so are the views on commodity currencies, this could be positive on RUB; neutral on CAD and NOK; negative on AUD, NZD and MXN.

Short NZD/CAD is a relative value trade with low correlation to global market trends.