NZD fell from 0.6597 to 0.6565 before steadying around 0.6570.

The resumption of the US dollar uptrend should weigh on the NZD during the next few months. We target 0.62 by year end.

The two main factors expected to contribute to NZD/USD weakness are RBNZ easing (we expect the OCR to fall to 2.00% next year) and eventual Fed tightening.

NZ swap yields 1 day: Should open little changed given the US holiday overnight, the 2Y perhaps up 1 bp at 2.71%, and the 10Y unchanged at 3.54%.

NZ swap yields 1-3 month: Short maturity NZ interest rates should fall further during the next few months with the RBNZ likely to deliver another 25 bps at the December meeting.

We thus target a 2Y swap rate of 2.65%. The 10Y yield will be partly influenced by the RBNZ's easing cycle but will also be hostage to expectations Fed policy will tighten. We target 3.70%+.

Hedging arrangements:

We recommend buying 15D + (1%) In The Money Puts and to reduce the cost of hedging by financing this long position, sell 3D (1.5%) Out Of The Money put option with positive thetas is also recommended on the contrary.

Caution: If you think the pair is going to crash, you should be loading up on put buys in existing strategy. The total cost of the trade is going to be the difference between the prices of the two options.