NZD/USD: Kiwi could under-perform if risk deteriorates –  MUFG

Analysts at MUFG Bank, continue to have a trade idea of shorting NZD/USD at 0.6560 with a target at 0.6300. They warn next week’s Reserve Bank of Australia (RBA) meeting could drag the kiwi to the downside. 

Key Quotes:

“The RBNZ we believe remains more likely to implement further easing than most other G10 central banks and is already due to launch a Funding for Lending Program that will be up and ready to run by the end of the year. The futures market in New Zealand does not anticipate any quick shift into negative rates territory or any action to intervene directly to lower the level of NZD. Indeed, the improvement in risk this week has seen the futures market price less probability of rate cuts by the RBNZ. However, today has seen some shift back in rate cut expectations and if that extends into next week we would expect NZD under-performance.”

“The RBA meets next week and any dovish surprise in tone and rhetoric from the RBA would likely drag NZD lower too. NZD held up better in September relative to other G10 currencies and was the 2nd best performing G10 currency with only JPY outperforming. We are not convinced that out-performance can persist if risk conditions continue to turn less favourable.”