FxWirePro: NZ swaps and forwards trades on RBNZ’s offhand shift in policy perspective

The Reserve Bank of New Zealand has surprised the streets by shifting to an easing bias for the OCR (kept on hold at 1.75%). The RBNZ is now saying that "the more likely direction of the next OCR move is down." It also said that the balance of risks to the economic outlook "has shifted to the downside." This is very different to February when the RBNZ said the next move could be "up or down" and that there were "both upside and downside risks."

RBNZ’s shift in OCR rate disappointed NZD with unchanged guidance. Tomorrow, we get to hear more from RBNZ Gov. Orr about the new monetary policy regime.

On the flip side, the minutes of the RBA board meeting in March made it clear that the RBA requires more data to resolve discrepancies between growth and labor market outcomes (cash rates were also on hold at 1.50%).

Accordingly, the chance of rate cuts in April or May have lessened.

While the unemployment rate reached a new cycle low of 4.9% in February, forward indicators suggest strength is unlikely to sustain.

Trade tips: Enter paid positions in the AUD 3s/10s swap/efp box. Take profits in received positions in AUD 1Yx3M swap vs. USD 1Yx3M swap and NZD 1Y forward 1s4s flatteners. Hold the receiver position in AUD 5Y swap vs. NZD 5Y swap. Hold the long in AUD 3Y bonds. Stay received AUD Apr-19 OIS and short the belly of the ACGB Apr-24s vs. Nov-29s and May-21s butterfly. Hold NZD-USD 2Yx2Y spread compression trades and the underweight in semi-governments vs. ACGBs. Courtesy: Westpac & JPM

Currency Strength Index: FxWirePro's hourly NZD spot index is inching towards -115 levels (which is highly bearish), while hourly USD spot index was at 78 (bullish) while articulating (at 13:01 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex