Buying GBPNZD – Selling NZDUSD – Forex Trading Tips

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Originally updated: 08:00

Trading Bias: bearish NZD

Currency pair: long GBPNZD, short NZDUSD

In today’s trading session we will be focusing on buying GBPNZD and selling NZDUSD currency pairs.

Current Sentiment:

Over the weekend China cut their lending and deposit rates by 0.25% after CPI came in lower on Saturday and last week’s trade figures showed slowing imports and exports. A Chinese slowdown has a downward effect on the AUD and in turn also NZD. Aussie is currently down 60 pips on the day. Antipodean currencies will remain pressured as long as demand is weakening in China. Multiple banks are predicting further PBOC cuts throughout the year.

The market is now starting to take notice of the chance of a rate cut from RBNZ next month. The bank make their next decision on June 10 and now several major investment banks are predicting a rate decrease at that meeting. The OIS swap market is now pricing in a 46% probability of a 25 basis point cut, up from 28% last week. Many banks are predicting two cuts from the RBNZ this year. Two weeks ago Assistant Governor McDermott made dovish remarks about easing by the RBNZ if demand drops off and inflation dwindles. Since then we’ve seen a poor employment release. Due to these rate cut expectations we are looking to trade into the event over the next four weeks as we expect the Kiwi dollar to depreciate. Selling NZD against stronger currencies such as GBP and USD is the optimal trade.
After the NFP on Friday the USD can be used as a neutral to weak bullish currency sentiment-wise until we get further data.

The pound remains relatively well supported on the back of the Conservatives win. There is a major risk event being the Inflation Report due out Wednesday which will certainly give GBP a push one way or the other.

According to the Wall Street Journal, the International Monetary Fund is working on contingency plans for a Greek debt default. This seems to have weighed on EURUSD and fundamentally the bias is still to the downside. Keep an eye on German bund yields for any signs of Euro hedges being closed.

Fundamentals:

The USD remains the strongest currency in the longer term, but the medium-term direction depends on data. Last week’s NFP number has abated the bearish sentiment on the currency to a degree. We await data this week for more direction.
The EUR remains fundamentally weak and the Greek debt issue, although seems to have taken a back seat, is ongoing. The Euro can easily get a boost on any new USD weakness, which has been witnessed lately. As speculation mounts of a Greek debt default we can expect Euro to be pressured against fundamentally bullish currencies.
GBP has regained its place as one of the strongest currencies now that the Conservative government remains in power; a degree of uncertainty has been erased.
AUD is relatively neutral with a downside bias. The rate cut has passed and there is little speculation of imminent cuts. China’s rate cut shows that the PBOC are acknowledging the slowdown in the economy, which has the potential to weigh on AUD if demand for commodities decreases.
NZD has a greater chance of easing monetary policy with since the poor employment figures were released. We will watch data to indicate the chance of a cut in the near-term. The OIS is now pricing a 46% chance of a June 10 cut.
CAD remains on the weaker side of neutral until we see more data or direction from the BOC. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil.
JPY remains weak but the market will likely need a new bout of easing to sustain another fall. In the meantime, the sentiment on the JPY can turn bullish very quickly if there is uncertainty in the markets. Today’s BOJ meeting minutes provided little in the way of insight.
CHF is fundamentally a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.

Technicals:

We look to buy GBPNZD from 2.07 or sell NZDUSD from 0.7420.

Other Market Moving News:

Later today we have Eurogroup meetings which may shed some new light on developments regarding Greece.
We also have the BOE interest rate decision where the Official Bank Rate will be left unchanged and as such no MPC Statement will be released.

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