Morgan Stanley Trade Of The Week: Sell NZD/USD
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Currency investors should consider selling NZD/USD this week, advises Morgan Stanley in its weekly FX pick to clients.
MS' rationale is as follows:
"In the stronger USD environment, the NZD would end up weakening the most. It is not all about the USD though, New Zealand economic data continue to weaken, with business confidence falling overnight, which has historically tracked the NZD. Building permits also fell 8.2%M, versus 2.3% previously. RBNZ rate cut expectations have increased with this week's dairy auction unlikely to show a significant enough improvement (3% higher futures relative to last auction) to support New Zealand's terms of trade. Stronger US data this week would support our trade too.
Our correlation analysis suggests that the NZD is currently more sensitive to the 2y yield differential with the US than the risk environment (S&P500), both drivers that should be supported should US data remain strong," MS clarifies.
In line with this view, MS recommends selling NZD/USD on a bounce towards 0.665, with a stop at 0.6780, and a target at .6120.
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