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Feb 23 - 10:55 AM

BofA: Expectations for Next Week's RBNZ and NZD/USD Trading Strategy

By eFXdata  —  Feb 23 - 10:00 AM

Synopsis:

BofA anticipates the Reserve Bank of New Zealand (RBNZ) will maintain the official cash rate (OCR) at 5.5% during its meeting on February 28. Given recent economic indicators aligning with or underperforming against RBNZ forecasts, no significant shifts in guidance or OCR trajectory are expected. The RBNZ is likely to continue its hawkish stance, underscoring a commitment to sustaining high interest rates for an extended period.

Key Insights:

  • RBNZ's Hawkish Outlook: Despite recent economic data, the RBNZ's hawkish communication is expected to persist, indicating a prolonged period of high interest rates.

  • NZDUSD Trading Strategy: BofA views the NZDUSD pair positively, buoyed by the broader trend of high-beta G10 currency outperformance. The shift in 3-month option skew towards calls and a reduction in put costs bolster this outlook, suggesting potential upward movements for the NZD.

  • Considerations and Alternatives: While optimistic about NZDUSD, BofA advises caution due to possible adjustments in rates markets that might align more closely with their economists' predictions, potentially dampening the NZD's strength. In this context, a long position in AUD is deemed more resistant to such macroeconomic uncertainties.

Conclusion:

As the RBNZ meeting approaches, BofA's analysis points to a steady OCR and a continuation of the central bank's hawkish rhetoric. Investors are encouraged to look favorably upon NZDUSD, with adjustments for potential market shifts, and consider AUD as a safer alternative amidst macroeconomic fluctuations.

Source:
BofA Global Research

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