Here Are The Best 3 Trades For The Dollar Bloc - TD

Here Are The Best 3 Trades For The Dollar Bloc - TD

9 March 2016, 19:50
Vasilii Apostolidi
0
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We test the dollar bloc currencies on a host of different measures to benchmark relative value.

We focus on high-frequency data, medium-term valuation, and market positioning for our analysis.

Our results show CAD has been the strongest macro trade thus far in 2016. We look for a recoupling to the macro themes for AUD and NZD in Q2, though.

Our favorite trades from this exercise are long AUD/ NZD and short NZD/CAD, AUD/CAD.

...Our views on the dollar bloc argue for outperformance in CAD compared to NZD and AUD. Our preferred trade is short NZD/CAD so fade any rallies.

Short-term models flag a target range of 0.85 and 0.88, so we still see some room to move lower. Our models also suggest that AUD/NZD could move higher with high-frequency data indicating an immediate target of 1.13.

On the macro side, terms of trade shocks, relative monetary policy, and currency valuation argue for AUD/NZD to move higher over Q2. The apparent risk of this negative NZD view is that the RBNZ underdelivers this week. Markets expect it to keep its powder dry but also to maintain its easing bias. A hawkish surprise could force a squeeze higher in NZD, owing to the net outstanding short positons. Even so, we think any pullback would offer an excellent entry point for new exposure to underweight NZD at the start of Q2.

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