New Zealand Dollar 2016: GBP-NZD is a Top Buy with TD Securities
TD Securities say betting against the NZ dollar using sterling one of their top trades of 2016.
We have already reported that TD Securities are a touch off kilter with views on the US dollar in 2016; the Canadian bank forecasts the end of the cyclical USD uptrend to end towards the beginning of 2016.
However, the British pound has more of a shelf-life it seems, particularly against the New Zealand dollar and Canadian dollar.
In their 2016 Global Outlook TD Securities say Long GBP vs NZD and GBP vs CAD are two of their top trades for the year ahead with the pound forecast to reach 2.80 against the New Zealand dollar.
However, should the NZD strengthen and reverse the trend then speculators should exit at 2.10 and admit defeat.
Backing the call, strategist New Rumpeltin says while they remain patient, the Bank of England should not be too far behind the Fed in normalising interest rates.
"From a macro perspective, the economy boasts firming labor productivity and real wages which will support UK domestic demand," says Rumpeltin.
Latest Pound / New Zealand Dollar Exchange Rates
  | Live: 2.3118▼ -0.04%12 Month Best:2.3553 |
*Your Bank's Retail Rate
| 2.2332 - 2.2424 |
**Independent Specialist | 2.2794 - 2.2887 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
The firing gun to the next leg higher in the pound’s rally against the New Zealand dollar, in place since April 2015, could be the Federal Reserve.
“Should the Fed normalise rates as soon as December, that could put pressure on rates markets and pull forward BoE expectations even further,” says Rupeltin.
From the NZD side of the equation, there remains the risks of additional easing from the RBNZ as the economy remains locked in a ‘growth rebalancing act.’
Throw in an expected drought and the NZD’s prospects are looking challenging. “We expect the RBNZ to cut to 2.50%, but risk of additional easing cannot be ruled out in 2016 with El Niño projected to be one of the worst in history,” says Rupeltin.
This could leave New Zealand’s agriculture-intensive economy reeling, intensify the commodity/terms of trade shock and risk undermining an overinflated housing market.
As such, TD Securities think long GBP positions versus the NZD and other commodity crosses is attractive on a risk/reward basis.
