11 Apr 2014
Current environment favours NZD carry trade - BNZ
FXStreet (Bali) - Raiko Shareef, Currency Strategist at Bank of New Zealand, notes that if low volatility persists, a significant NZD/USD correction may take longer to develop, as the current environment continues to favour carry trade plays.
Key Quotes
"Low FX volatility tends to support the NZD as a target carry-trade currency. Currently, the returns one would achieve from that strategy (funded out of USD) are close to 10-year highs. Should this environment persist, we may have to wait a while longer for the correction we expect based on our fundamental outlook (0.78 by end-2014)."
"Our momentum model continues to be long NZD/USD, and has been so since mid-February. We use this to get a feel for how basic trend-following/momentum investors are positioned. It would take a significant retracement (all the way to 0.8514) for this position to be stopped out."
Key Quotes
"Low FX volatility tends to support the NZD as a target carry-trade currency. Currently, the returns one would achieve from that strategy (funded out of USD) are close to 10-year highs. Should this environment persist, we may have to wait a while longer for the correction we expect based on our fundamental outlook (0.78 by end-2014)."
"Our momentum model continues to be long NZD/USD, and has been so since mid-February. We use this to get a feel for how basic trend-following/momentum investors are positioned. It would take a significant retracement (all the way to 0.8514) for this position to be stopped out."