According to Mark McCormick, head of FX strategy at TD Securities in North America
He mentions in a note to short the pair in order to take advantage of mis-priced data pulse and as a contrarian view against market positioning.
McCormick argues that although Canada's data momentum is the worst among the G-10 currencies, it's reflected in the pricing with "the natural effective exchange rate running at about a 3% discount". While adding that New Zealand's data momentum remains negative and has decelerated sharply from three months ago.
He also says that "in-house short-term positioning and valuation model favours a rotation into CAD", with markets currently running a modest NZD long and a deeply short CAD view.
The note suggests a target of 0.9000, with a stop-loss at 0.9565.
It's not a pair that I personally trade, and the note here has a lot to do with the firm's own valuation models - which we will never know how accurate or how true they are. But looking at the daily chart, the uptrend channel remains for the pair and that supportive trendline that I drew up remains to hold up.
Unless there is a solid daily close below that, then it is likely to open up a break to the downside. The kiwi has been one of the more resilient commodity currencies in the wake of all the bashing in equities and what not this year and unless NAFTA risks are cleared, it's hard to argue a case for the loonie to strengthen that much against other currencies for the time being - in my view.
But hey, trading is a two-way street. As long as you have proper risk management, there's no wrong in having a view.
