Sold NZD/JPY trade and comment 20 June 2107
Tue 6/20/2017 12:09 PM MDT
Real Time AmpGFX – sold NZD/JPY; lower GBP/USD s/l
Sold half unit NZD/JPY at 80.69
Position
Short half unit NZD/JPY at 80.69; s/l 81.58
Short half unit NZD/USD at 0.7243; s/l 0.7313
Short half unit GBP/USD at 1.2655; s/l 1.2713
Comment
US 10 year yields remain low, dragged down by weaker oil prices, low inflationary indicators in the USA, and possibly by a somewhat more hawkish stance by the Fed that is pursing its policy tightening path despite the weaker inflation trends.
USD/JPY has bounced recently at odds with flat US 10 year yields. And it may now be approaching resistance (112.20)
NZD is perhaps also supported by lower US yields, in that they have tended to weaken the USD and send capital seeking higher beta EM assets. At times the NZD may have benefited more that the JPY from lower US yields, but now lower yields may be accompanied with more concerns over tightening US monetary conditions and over-priced equity and EM markets. In which case weaker US yields should tend to support the JPY more than NZD. This was essentially my reasoning for shorting NZD/JPY after the FOMC, so trying again.
NZD has out-performed AUD and CAD today which probably reflects lower oil prices and lower iron ore and copper prices. The GDT auction resulted in a small 0.8% fall from recent highs.
There is little reason for the RBNZ to change the wording of its policy statement on Thursday. Which sounds relatively dovish.
NZ housing credit is slowing. House price growth has slowed. House sales have been falling.
NZ Job ads growth has slowed from a peak in Jan-2016.
NZ GDP was lower than expected in Q4 and Q1.
However, PMI surveys, including the employment components were strong in May.
The NZ TWI is up 3.3% since the last policy meeting and may draw comment from the RBNZ about hindering rebalancing. However, NZ commodity prices have strengthened across dairy, forestry, and livestock this year, and may more than account for the stronger NZD/USD.
The market is probably not expecting anything new from the RBNZ this meeting.
Still in the background is the DTI measures that are likely to be added to the macroprudential toolkit late in the year and should keep the property market in check. And a national election on 23 September, which will increase debate on housing and immigration and poses a risk of NZ First gaining enough seats to bargain with either side of politics, suggesting the market is currently underpricing the political risk.
The CFTC position survey for positions just ahead of the FOMC meeting last week showed traders had moved to a slight net long NZD position, while they remained net short JPY. This suggests positioning is better placed for supporting a lower NZD/JPY.