Long AUD/NZD (From 9-May to 18-May) Comment on RBNZ statement ( 9-May)
Stopped out, in profit on 18 May.
Real-Time AmpGFX – Stop loss raised in AUD/NZD (Thu 5/17/2018 10:29 AM)
Now very close to market.
Not really seeing a case for more upside. If anything I expect to be taken out on a retracement. But sticking with the current uptrend.
Positions
Long half unit AUD/NZD at 1.0680; s/l 1.0893
Real-Time AmpGFX – new orders for AUD/NZD & US bonds, and thoughts on these trades (Tue 5/15/2018 1:21 PM MT)
I am not sure there is much more to gain from being long AUD/NZD from these levels.
The gains are more or less in line with the relative rise in AUD commodity prices. And the rate spreads have improved as well, both helping support the recent rebound.
In earlier work we did, we found that rate spreads had not been very good in determining direction for AUD/NZD over the last few years, but relatively commodity prices had been better. (AUD/NZD struggles; has NZD become less risk-sensitive?)
We though some of this reflected improved fundamental risk metrics for the NZ relative to the AUD, causing a divergence in AUD/NZD below the historical rate spread.
We also worried that the political cycle and Royal Commission in Australia might see the AUD continue to under-perform. This risk remains, although the political risk may have eased since the Budget and Labor Party MP resignations and bi-elections.
This trade was taken initially on an opportunistic view that RBNZ Orr would sound more dovish. And the recent trends in economic data outcomes which were surprisingly strong in Australia vs NZ. The Australian budget outcome was also strong.
The relative dovishness of Orr (compared to his predecessors) has largely played out.
We are willing to hold this trade on what we see as some upside risk for the Australian labour data this week. Possibly also wages could surprise upside, although less likely.
However, we are moving our stop loss to lock in more gains, and will probably continue to keep a relatively tight rein in this trade.
The US 10 year yield has broken to a new high, and we are giving this more space to develop, but moving our stop loss in the futures down to near our entry, which is essentially just below 3% yield. We are looking for yields to establish themselves in a 3% to 3.25% range (if not higher).
Positions
Long half unit AUD/NZD at 1.0680; s/l 1.0843
Short half unit TYM8 at 119-07; s/l 119-07+
Real-Time AmpGFX – order update, thoughts on AUD/NZD; t/p raised (Thu 5/10/2018 9:24 AM MT)
S/l orders triggered in short AUD/USD (before US CPI) and short EUR/USD (after the US CPI) … both trades closed in profit
S/l in AUD/NZD raised to 1.0767; t/p raised to 1.0998
The rates spread has moved further in favour of AUD/NZD since the RBNZ statement.
I see upside risk to the Australian economic reports next week – consumer confidence, wages and labour data.
I see risk towards weaker PMI survey data in NZ next week – in line with recent softening in NZ data, including the ANS business survey and job ads.
Equities and EM markets recovering; AUD has been somewhat more risk-sensitive than NZD in recent months.
Positions
Long half unit AUD/NZD at 1.0680; s/l 1.0767; t/p 1.0998
Charts:
AUD/NZD vs. yield spreads
AUD/NZD vs. relative commodity prices
AUD/NZD vs. EM equities and currencies
Real-Time AmpGFX – AUD/NZD order update (Wed 5/9/2018 10:20 PM MT)
Positions
Short half unit EUR/USD at 1.2206; s/l 1.1943; t/p 1.1788
Short half unit AUD/USD at 0.7517; s/l 0.7488
Long half unit AUD/NZD at 1.0733; s/l 1.0824
Real-Time AmpGFX – Sold AUD/NZD to close half long position, comment on OCR statement (Wed 5/9/2018 3:35 PM MT)
Sold half unit AUD/NZD at 1.0740 to close half long position
Comment
As expected, Adrian Orr has put a refreshing new style into the RBNZ statement.
Up front, he introduced two-way risk for rates saying “The Official Cash Rate (OCR) will remain at 1.75 percent for some time to come. The direction of our next move is equally balanced, up or down. Only time and events will tell.”
And he has placed a little more emphasis on the need for low rates for a long time, although this was in the previous statement.
On reading the opening chapter of the MPS, the outlook has not changed much; it still presents a view that the next move in rates is expected to be up. The rates projections are unchanged from February.
Basically, Orr has injected a bit more savvy and realism into the game. By letting the market know a cut is not out of the question, even though not the central forecast, and giving a better sense of the uncertainty of setting policy. The press conference is a must watch. It may help cement gains in AUD/NZD.
I took profit to lock in gains since this is just a stylistic change, not a fundamental change. But leaving open something for potential follow-through price action.
Positions
Short half unit EUR/USD at 1.2206; s/l 1.1943; t/p 1.1788
Short half unit AUD/USD at 0.7517; s/l 0.7488
Long half unit AUD/NZD at 1.0680; s/l 1.0673 (s/l raised)
Real-Time AmpGFX – AUD/NZD order and further comment ahead of RBNZ statement
Hi, See below the message that we had bought AUD/NZD
We have adjusted our orders to remove the AUD/NZD take profit.
On further consideration, we want to leave open the upside on the possibility that Orr is even more dovish than expected.
He is known for thinking outside the box; it is possible that he says a rate cut is not out of the question, and embeds a risk of a cut in the MPS projections.
Positions
Short half unit EUR/USD at 1.2206; s/l 1.1943; t/p 1.1788
Short half unit AUD/USD at 0.7517; s/l 0.7488
Long one unit AUD/NZD at 1.0680; s/l 1.0578
Real-Time AmpGFX – AUD/NZD order and further comment ahead of RBNZ statement
Bought one unit AUD/NZD at 1.0680
Comment
This is an opportunistic short-term trade on a bet that the new RBNZ Governor Orr will sound dovish.
I think Orr will come into the job and send a signal that his job is to get inflation higher, and in that context emphasise that rates will be held low for as far as the eye can see. Equally, if pressed, he will indicate that a lower exchange rate would not be unwelcome.
Orr is a much better communicator than his predecessors and may use this to manipulate the market to his advantage.
Recent economic reports and inflation indicators point to the risk of ongoing weak inflation outcomes.
(Chart – Relative commodity prices have moved somewhat in favour of the AUD in the last month, helping account for the modest rise in AUD/NZD)
(Chart – The rate spreads have generally improved for the AUD/NZD over the last two months. Connection to the AUD/NZD has been relatively weak recently)
NZ economic reports have tended to be weaker than expected over recent weeks. This includes business surveys, consumer confidence, retail sales, ANZ CPI monthly, ANZ job ads (although the employment data for Q1 were strong), NZ trade.
In contrast, recent Australian data have been stronger than expected. The Australian budget numbers highlight an improved outlook
(Chart – Citibank Economic Surprise index)
(Chart – Business surveys are in stark contrast; NAB Australian surveyed current conditions are at a record high, ANZ NZ own-activity index is below average)
On the eve of the first RBNZ statement by new Gov Orr, rate expectations are for no change in rates until first half of next year, with a hike fully priced-in by around mid-2019. So there is limited scope for rates to fall
The last OCR statement by Spencer was notable for dropping a reference to the exchange rate. I sense that Orr will not see any advantage from re-inserting a comment. If pressed in the press conference, he might acknowledge that it is lower recently and that’s a good thing given the low tradables inflation and the desire for a higher inflation. He might say a weaker NZD is consistent with the low NZ rates and rising US rates.
Positions
Short half unit EUR/USD at 1.2206; s/l 1.1943; t/p 1.1788
Short half unit AUD/USD at 0.7517; s/l 0.7488
Long one unit AUD/NZD at 1.0680; s/l 1.0578; t/p 1.0824
Note we were stopped out in our short EUR/JPY position in profit