Short NZD/USD (From 22-Oct to 23-Oct)
Real-Time AmpGFX – squaring short EUR and NZD positions (Tue 10/23/2018 4:50 AM MT)
Bought one unit EUR at 1.1475
Bought one unit NZD at 0.6563
Comment
At risk of appearing indecisive, I have decided to close both short positions in NZD and EUR.
Price action has un-nerved me, with the broad weakness in the USD, and fall in US bonds yields in offshore trading.
The FX and rates market appears to be mainly in position-squaring mode. While safe haven demand might normally support the USD, the first move may be towards cutting all positions which are generally USD long. This could be reinforced by a deeper fall in US rates on thoughts the Fed may halt rate hikes or even reverse them in a stock market rout that extends more clearly to the USA.
China is moving into all-out stock market stabilization, and while this may be a reflection of deep underlying problems, in the first instance it could also encourage squaring USD long positions, including against the CNY.
Risk aversion has not spread to Euro-periphery bonds that are modestly out-performing German yields on Tuesday; another sign that the market is squaring all positions.
We had thought there may be more of a focus on fundamental problems in Europe and China. However, the risk is that the market turns to worry about contagion to the US economy and lower US rates.
Uncertainty is generally quite high, and position-squaring may simply dominate in FX and rates, while equity investors may retreat to cash. The pressure may be more on US economic reports and earnings to beat expectations.
Real-Time AmpGFX – Sold NZD/USD (Mon 10/22/2018 10:58 AM MT)
Sold one unit of NZD/USD at 0.6546
Comment
Chinese efforts to boost its stock market in recent sessions appears to have had limited impact on confidence. The market may be starting to see China with limited capacity or resolve to boost growth for fear of worsening its debt bubble. Chinese policymakers are two to three years into a gradual process of cleaning up their poorly regulated debt markets and have to keep going. The US trade policy towards China is intensifying pressure on the economy.
The CNY continues its steady fall, and this is likely to spread to confidence in the Asia region.
The NZ economy appears to have slowed to trend or below, and rates are at best likely to remain on hold for the foreseeable future. Rising US rates may keep upward pressure on the USD and/or undermine global investor confidence.
last week net migration in NZ fell to a low in three years. While it remains at a high level, the decline may be seen as a reflection of diminishing demand for labour and growth in the economy. Non-resident bond holdings fell to 57.4%, the lowest percentage of outstandings since 2004, consistent with the lower yields and lower global demand for the NZD.
NZ trade performance has waned in the last year, and dairy prices have fallen steadily since April to around a two year low. Trade data this week may highlight the weaker trend.
NZD recently tested the higher side of a weakening channel, and we are anticipating this falling trend to persist.
A risk to a short position is positioning that still appears to be at an extreme short position.
Positions
Short one unit NZD/USD at 0.6546; s/l 0.6623; t/p 0.6388 (Capital at risk 1.21%)
Short one unit EUR/USD at 1.1471; s/l 1.1523; t/p 1.1323 (Capital at risk 0.47%)