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By year-end, we expect NZD to see it below 0.6600 levels if the RBNZ cuts the OCR. In addition, we expect the US economy to improve in the second half of 2019, which should support the US dollar.
Currently, our predominant exposures are short antipodes. We increase the beta ahead of potentially landmark policy decisions from the RBA and RBNZ in May.
NZD sensed the brunt of a poor CPI print and the rates market has incrementally been building in a greater likelihood of a cut in May (now roughly 50%, backed by the RBNZ's explicit easing bias). This has pushed our NZDUSD leg into the money.
Unlike AUD, however, NZD still has one critical hurdle to clear ahead of the upcoming RBNZ meeting that will help the market fully price in a cut, which is the 1 May unemployment data.
While we believe the RBNZ is on track to cut regardless, a significant move higher in the unemployment rate will likely cement the market’s view that cuts are imminent. So too would a move from the RBA - RBNZ is unlikely to stay on hold if its neighbor pre-empts with its own cut.
We continue to fund NZDUSD puts with puts in AUDNZD. The RBA and RBNZ may be doing their own thing from a global perspective, but we expect them to do so in lockstep and so support AUDNZD.
While AUDNZD implied vols remain relatively high, we've derived profits from shorting AUDNZD puts given that much of the volatility in the antipodean theatre has been led by NZD weakness which has lifted the AUDNZD cross.
The Reserve Bank of Australia (RBA) maintained the status quo in its monetary policy, leaving key rates unchanged today. We increase the beta ahead of potentially landmark policy decisions from RBNZ in this week, this time through an AUDJPY put part funded by selling a USDJPY put. Courtesy: JPM
Currency Strength Index: FxWirePro's hourly AUD spot index is inching towards 76 levels (which is bullish), while hourly NZD spot index was at -108 (highly bearish) and JPY is at 133 (bullish) while articulating (at 11:07 GMT).
For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex
