RBC Trade of the Week: Short GBP/NZD

RBC note that this week brings “CPI releases in the UK and New Zealand. Both rates markets partially price a final central bank rate hike, spread over several meetings, so there is scope for repricing of rate expectations on surprises either way.”

• “There is an asymmetry, however, in the way FX markets have reacted to surprises in the data recently.”
• “GBP has fallen far more on negative CPI surprises than it has risen on positive surprises (the beta to CPI surprises is roughly five times larger when surprises are negative), which we think reflects ongoing concerns of the credibility of policy in the UK.”
• “For NZD, reactions have been much closer to symmetric.”
• “Our economists are close to consensus for the UK data, but we favour going into the data short GBP.”
• They issued the short GBP/NZD recommendation at NZ$2.0558, with a target of NZ$2.015 and a stop set at NZ$2.0750.