Forex Investment and Currency Trading

Short NZD/CAD: Both NZ and Canada released their respective key Business Surveys this week. The details support market’s forecast for the NZ - Canada GDP growth differential to narrow from +1.1%pts in Q1 to -2.0% pts by the end of this year and the bearish NZD/CAD view. In particular, the Q2 NZ Institute of Economic Research Quarterly Survey of Business Opinion highlights the risk of a July rate cut from the RBNZ. Meanwhile, the BoC rate decision next week (July 15) will be followed by the Update to the April Monetary Policy Report (July 17), and a press conference by BoC Governor Carney. While there might not be much more than the thin CAD statement in the April MPR, the BoC is quite likely to leave the lingering impression of greater comfort with further inflation-busting CAD strength. It is recommended selling a half position of NZD/CAD on a break of the multi bottom at 0.7625, and will add another half position on a break of 0.7555. Stop at 0.7750.

Long USD vs JPY and NZD: The medium term view continues to call for USD gains against most of the majors, though this has been challenged in recent sessions by commodity prices hitting new highs and renewed weakness in equity prices. This basket exploits JPY’s role as “path of least resistance” for USD strength and a generally negative NZD view, while remaining roughly
neutral to risk aversion. When short term market conditions become more conducive to expressing the medium term USD-positive view, this is the favoured way of doing it. Wait for a technical signal from one or other currency pair before entering, however.