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Aug 23 - 09:55 AM

Credit Agricole: Time to Sell NZD Against AUD and CAD Following Retail Sales Woes

By eFXdata  —  Aug 23 - 08:15 AM

New Zealand's economy may be showing signs of weakness that could give investors a reason to reconsider the NZD, especially against the AUD and CAD. Here are the key highlights:

  1. New Zealand Retail Sales Slump:

    Warning Signals: The recently released retail sales data for Q2 revealed a decline of -1%, continuing a trend of similar quarterly declines.

    Central Bank Expectations: This contraction throws into question the Reserve Bank of New Zealand’s (RBNZ) previous optimism that rates could be held at 5.50% until late 2024 before any rate cuts come into play.

  2. Swap Rates and Currency Dynamics:

    Rate Outlook: Following the disappointing retail numbers, the 2-year swap rate in New Zealand has declined by over 10 basis points.

    Currency Resilience: Despite a weaker economic outlook, the NZD/USD pair has been bolstered by a softer USD and a stronger Chinese Yuan (CNY).

  3. Chinese Yuan Impact:

    External Support: Reports suggest that Chinese state-owned banks have been purchasing CNY, offering some degree of support to the NZD/USD.

  4. Strategic Moves for Investors:

    Cross Currency Plays: Investors keen on exploiting the expected downturn in New Zealand rates might find the most promising opportunities in shorting the NZD against either the AUD or CAD.

Conclusion: The contraction in New Zealand's retail sector signals economic vulnerabilities that the RBNZ might have underestimated. This new data makes a strong case for investors to consider selling the NZD, particularly against the AUD or CAD, to potentially benefit from New Zealand's shifting economic landscape.

Crédit Agricole Research/Market Commentary


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