J.P.Morgan Add To Bearish NZD Exposure Via Short NZD/CAD

J.P.Morgan note that they “have long held a bearish NZD bias and initiated an outright short vs USD in the wake of the RBNZ meeting two weeks ago, which delivered a 50bp hike but also a currency-bearish message of front-loading for NZD. We continue to think that the money market curve is too aggressively steep and look for the cash rate to end the year at just 1.75%. These bearish biases were amplified as risk sentiment soured around China and Europe. We are therefore inclined to expand our NZD underweight via NZD/CAD, a pairing that we have been considering since just before the two April central bank meetings. Indeed, the same-day policy events highlighted distinctly different policy trajectories, with the BoC emphasizing Canada’s excess demand and the high likelihood of getting to neutral (they revised their estimate of the neutral rate as well, suggesting a higher terminal level and overall confidence in the post-COVID cyclical recovery). Given the similarities between the Fed and BoC and USD/CAD’s tight range so far this year, NZD/CAD thus screens a viable, lower-beta NZD/USD proxy that should be somewhat more insulated to general swings in market sentiment.”

• They initiated a short NZD/CAD position at C$0.8320, with a stop loss at C$0.8528.