SELL NZD ON DIVERGENT MONETARY POLICY

"We recommend selling NZDUSD targeting 0.7130 with a stop-loss at 0.7315, implying a reward-to-risk ration of 2:1 (spot reference: 0.7252). In stark contrast to the Fed, the RBNZ is likely to strike a dovish tone in its March Statement, given recent disappointing activity data. Following the February MPS meeting, Assistant Governor and Chief Economist, John McDermott, noted in an interview with Bloomberg that while the central bank’s stance was neutral with “a significant probability that the next rate move could be an increase sometime in the future” he added “there’s also a substantial probability that the next move could actually be a cut. If we saw big moves in inflation expectations, the market should expect the bank to act.” As noted above, NZD may experience further downward pressure if a more hawkish Fed creates an environment of higher US interest rates and weaker equities, given that its high sensitivity to these variables will likely be exacerbated by a lack of real rate advantage, FX overvaluation, and a highly responsive government bond market."
- BARCLAYS