New Zealand Dollar a Sell: Strategists

The NZ dollar looks ripe for a downside swing argue strategists at BNZ and TD Securities.

The rally in the NZ dollar has gone too far argue TD Securities, a leading global financial services provider.

The view that the NZD is ripe for a sell at current levels is echoed by BNZ who told us recently that, “near-term strength may persist, but current NZD levels are good medium-term selling opportunities."

In a communication to clients from New York, TD’s FX Strategist Mazen Issa says the NZD’s rebound has run too far.

The New Zealand dollar has enjoyed a period of strength through September and October, indeed the NZD was the best performing currency in G10.

The reason was an improvement in commodity prices; the price of milk in particular has been key to the recovery.

However, TD Securities join that school of thought that believes the New Zealand dollar’s recovery is a corrective phase within a broader trend lower.

That longer-term trend must ultimately restart; the only problem those watching this currency is getting the timing right.

RBNZ Will Target a Lower Exchange Rate

If the trend lower in the kiwi does not restart, the Reserve Bank of New Zealand (RBNZ) will sit up and take notice.

Policy makers desperately need a weaker currency to ensure the country’s exports remain competitively priced on the global market.

In September the RBNZ said further depreciation in the NZD against the USD was appropriate - back then the exchange rate was at 0.6300.

Today the conversion is much higher at 0.67.

Latest Pound / New Zealand Dollar Exchange Rates

	Live: 2.3114▼ -0.06% 12 Month Best: 2.3553
*Your Bank's Retail Rate	2.2328 - 2.242
**Independent Specialist	2.279 - 2.2883 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

“We think we will see aggressive language similar to the July statement where further depreciation was viewed as “necessary” when NZDUSD traded around 0.6600, which is about 2-big figures below where spot currently trades,” says Issa.

Importantly the trade weighted NZ dollar remains around the 73.50 level which is almost 8% above the September 23rd lows.

Apart from a nervous RBNZ, risks to the kiwi dollar’s outlook exist in the form of positioning amongst market participants.

“Positioning suggests that the balance of risks leans towards the downside for kiwi,” says Issa.

The latest IMM data has shown that aggregate positioning is effectively neutral but digging deeper, leveraged funds remain near record net shorts (as a percentage of open interest).

Those looking to sell the NZD should however be looking at the NZD vs CAD conversion it is argued by TD Securities.

“Note that the correlation between NZDCAD and commodity prices is broadly neutral, which suggests that this cross is an effective vehicle to express a policy divergence trade,” says Issa.

TD Securities are looking to short NZDCAD at 0.89 with a target at 0.85.