NZD/CAD: An opportunity to sell - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that there may be an opportunity to sell the NZD/CAD, anticipating that it might close its over-valuation gap.

Key Quotes

“Assuming you agree with the notion that relative commodity price developments matter and that the recent back-up in global bond yields might reduce the pre-occupation of global investors in bidding up higher yielding currencies.

Additional factors that might argue for a weaker NZD/CAD are that there is a high likelihood that the RBNZ will use its last meeting of the year on 10-November to further cut interest rates.  Currently, the rates market has priced-in a 67% probability that it cuts by 25bp.

The most recent reports from the real estate sector and mortgage growth indicators suggest that the latest RBNZ macro-prudential measures introduced on 1 October are dampening activity in the New Zealand housing market.  This might be expected to increase the scope for the RBA to cut rates and continue to jaw-bone for a weaker NZD.

Recent Canadian economic data have been mixed as it recovers from a Q2 slump in activity related to the Alberta wild-fires.  However, the BoC is likely to wait to see how fiscal stimulus measures play-out in the second half of the year.  Recent evidence from the USA economy is also more encouraging, with stronger than expected vehicle sales and service sector PMI.  USA core capital goods orders have also improved in the last three months.  Higher oil prices are also expected to help stabilize the US energy sector.  The BoC is more likely to leave rates on hold for the foreseeable future.: