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CFTC is reporting record short NZD positions, not surprising when senior RBNZ officials have been advocating rate cuts since August, according to Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities.

Key Quotes

“Meanwhile, activity continues to surprise to the upside: Q2 expenditure GDP surged by +1.2%/q via private and public spending and a quarter-point from trade. Sept retail card spending surged by +1.1%/m such that Q3 spending was +2.2%/q, pointing to outsized real consumption growth, a strong start to Q3 GDP. The 2017/18 (fourth consecutive) budget surplus was $NZ5.5b (1.9% of GDP) due to robust revenue growth.”

“The economy is in good shape, and the RBNZ needs to keep its powder dry ready for the next ‘real’ crisis, not mitigate business sector rebellion. USD gyrations, weak soft data and strong activity alternatively buffet the NZD but we see AUDNZD heading to 1.103 by Q1 2019.”

“Our simple fair value model says NZD is still rich, plus we cannot rule out the RBNZ Governor revisiting rate cut talk at the 8 November MPS, keeping OIS and NZD under pressure.”