New Zealand dollar still outperforming despite PM comments

New Zealand Dollar (NZD) is still the top performer overnight after comments from PM Key that "NZD has fallen faster than expected" and that the economy is "still growing at a good pace." The severity of the short squeeze in NZD on what were really fairly innocuous comments highlights just how short NZD the market is heading into this week's RBNZ meeting, an observation corroborated by the record IMM shorts in Friday's data. 

The RBNZ is expected to deliver another 25bp cut at the coming week's OCR review, as do 18 of 19 economists in the Bloomberg survey. With more than a full 25bp cut priced in, the hurdle is high for further NZD weakness and arguably it would take a 50bp cut to not disappoint. 

"Our Trade of the Week this week is long NZD/JPY, which will also benefit if markets continue their trend toward risk-seeking," says RBC Capital Markets.