NZD: Position-Squaring Upside Risk; RBNZ On Hold Next Week - Credit Agricole

The NZD remained supported mainly on the back of improving risk sentiment and stabilising commodity prices.

Next week all eyes will be on the RBNZ rate announcement. Although inflation expectations fell to the lowest level since 1994, we expect the central bank to keep rates unchanged at 2.50%.

Nevertheless, RBNZ Governor Wheeler will likely reiterate EM-related concerns. This is especially true as exports continue to suffer from lower demand abroad. As such Wheeler should keep all options regarding a more aggressive stance open in order to prevent the NZD from strengthening.

Nevertheless, broadly unchanged rate prospects coupled with further improving global risk sentiment should keep the NZD subject to upside risk. This is especially true as elevated speculative short positioning keeps position squaring related correction risk intact.

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