A note from TD Securities on the New Zealand and Canadian dollars, on Friday TD Securities bought NZDCAD
at 0.8970
- stop loss at 0.8780
- target of 0.9300
TD cite:
Since the USD rally began in mid-April, the CAD has outperformed most of its G10 peers quite handily with NZD the major laggard.
The NZD screens 4% cheap … it lags the improvement in the terms of trade.
- Further, negative data surprises are near a 5yr extreme and taken in conjunction with an advanced positioning washout suggests to us that a lot of bad news is in the kiwi price.
For CAD, we think we have passed peak optimism in NAFTA insofar as it providing a sustained bid to the currency.
- Though we expect the BoC to hike in July, that is largely priced and we firmly disagree with the cumulative tightening priced in further out the curve; 2 by year-end & ~3 by Q1-19. This will be too tall of an order for the BoC. Too much implied tightening also suggests that the CAD has more to lose vs. its … peers where the OIS curve is benign.
A rate cut by the RBNZ is a low probability event, making NZDCAD topside a cleaner expression of idiosyncratic CAD risks.
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A look at NZD/CAD daily chart:
