Our RBNZ outlook (on hold throughout 2018) is anchoring short-maturity interest rates and should keep 2yr swap rates in a 2.10% to 2.50% range, as long as inflation remains below 2%.
While we pair EUR vs NZD to neutralize the risk to EURUSD from a further repricing of the Fed. The RBNZ is an unlikely candidate to signal tighter policy as the slowdown in migration intensifies the downturn in housing and argues against a policy response to upside inflation risks from minimum wage increase etc. The 3m window KO halves the premium compared to a digital call.
In Sweden, the prospects of a policy pivot were delayed not derailed this year. EURSEK is currently overshooting cyclicals by over 4% the most since 2010. The rebound in inflation to 2.0% in November reduces the risk of the central bank extending QE again next week (this was 0.3% ppt higher than the Riksbank's estimate), although it could still push back the lift-off point for rates by a quarter to 3Q’18 in order to better align itself with the ECB’s extension of QE through September.
Long a 9m 1.80 EURNZD digital call with a 3m 1.80 window KO. Paid 17.5%. Marked at 19.04%.
Currency Strength Index: FxWirePro's hourly EUR spot index has shown 78 (which is bullish), while hourly NZD spot index was at 62 (bearish), USD at 56 (bullish) while articulating at 07:05 GMT. For more details on the index, please refer below weblink:
http://www.fxwirepro.com/currencyindex
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