SHORT GBPNZD: CARRY TO OUTPERFORM; LOWER BOE EQUILIBRIUM?
GBPNZD:
1. Wanted to repost my view on GBPNZD - remain short on rallies here into 1.82 with a 1.80, 200pip target.
2. This whole week weve remained strictly rangebound and sterling kiwi has paid every time (about 10) on shorts at the 1.810 level so i will continue this view at 1.82 given:
1) NZD carry continues to be the highest in G10 so Kiwi demand will likely hold up for the foreseeable future especially on BOE fwd guidance - though UK data outperforming in the near term could continue to put sterling topside pressure though the long game i dont expect this to last.
2) Sterling looks overbrought on the daily at these levels some 400pips higher than BOE monpol lows, here imo is the true home for GBPNZD given I expected the lean for further easing to be on BOE vs RBNZ as kiwi house prices will continue to prevent aggressive easing (as Wheeler pointed out earlier this week - rapid easing isnt going to happen).
Risks:
1. Technically, on sterling demand I think risk is to the 1.83 resistance level, I dont think sterlingkiwi has much more given the amount of resistance we have found down at 1.81.
2. AUDNZD Re-balancing - there looks like there may be a AUDNZD rebalancing higher after 2wks of selling, this could shift GBPAUD aussie shorts into kiwi shorts vs GBP, though the AUDNZD movement higher looks to be struggling to gain traction given the differential of 50bps remains the bottom line, and weak fwd guidance from both RBA and RBNZ makes it difficult to differerentite the two (not to mention aussie data has been less firm in recent times vs kiwi).
3. UK PMI - UK PMIs next week, if outperforming will likely give GBP bulls more fuel to own sterling, given it is economic revisions recently higher that has been the fundamental reason for sterling topside - so further leading indications from PMIs could continue this trend, though given the move already higher, 1.82 could be the ceiling here (though watch out for a AUDNZD equilibrium higher which would make gbpnzd move through 1.82). If the PMIs were to show any figure above 50, expect an aggressive 300pip+ movement higher.
4. USD hiking risk - USD strength will cause NZD yield seeking supply as investors shift into USD markets instead.. as we have seen today with the spike higher, continued USD rate performance will drag on NZD longs in the medium term.
1. Wanted to repost my view on GBPNZD - remain short on rallies here into 1.82 with a 1.80, 200pip target.
2. This whole week weve remained strictly rangebound and sterling kiwi has paid every time (about 10) on shorts at the 1.810 level so i will continue this view at 1.82 given:
1) NZD carry continues to be the highest in G10 so Kiwi demand will likely hold up for the foreseeable future especially on BOE fwd guidance - though UK data outperforming in the near term could continue to put sterling topside pressure though the long game i dont expect this to last.
2) Sterling looks overbrought on the daily at these levels some 400pips higher than BOE monpol lows, here imo is the true home for GBPNZD given I expected the lean for further easing to be on BOE vs RBNZ as kiwi house prices will continue to prevent aggressive easing (as Wheeler pointed out earlier this week - rapid easing isnt going to happen).
Risks:
1. Technically, on sterling demand I think risk is to the 1.83 resistance level, I dont think sterlingkiwi has much more given the amount of resistance we have found down at 1.81.
2. AUDNZD Re-balancing - there looks like there may be a AUDNZD rebalancing higher after 2wks of selling, this could shift GBPAUD aussie shorts into kiwi shorts vs GBP, though the AUDNZD movement higher looks to be struggling to gain traction given the differential of 50bps remains the bottom line, and weak fwd guidance from both RBA and RBNZ makes it difficult to differerentite the two (not to mention aussie data has been less firm in recent times vs kiwi).
3. UK PMI - UK PMIs next week, if outperforming will likely give GBP bulls more fuel to own sterling, given it is economic revisions recently higher that has been the fundamental reason for sterling topside - so further leading indications from PMIs could continue this trend, though given the move already higher, 1.82 could be the ceiling here (though watch out for a AUDNZD equilibrium higher which would make gbpnzd move through 1.82). If the PMIs were to show any figure above 50, expect an aggressive 300pip+ movement higher.
4. USD hiking risk - USD strength will cause NZD yield seeking supply as investors shift into USD markets instead.. as we have seen today with the spike higher, continued USD rate performance will drag on NZD longs in the medium term.
Trade closed: target reached:
Cancelled trade before 1.82 - USD STIRs are rallying - carry ccys are likely to be squeezed into next week esepcially with the low data so dont want to be owning kiwi or aussie here - switch to gbpusd shorts from 1.315