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Oct 30 - 02:55 PM

HSBC: Bearish Stance on NZD on 3 Reasons with a Short NZD/CAD Position Targeting 0.7830

By eFXdata  —  Oct 30 - 01:30 PM


HSBC has turned bearish on the New Zealand Dollar (NZD) due to a trio of reasons that were previously providing support. The bank now holds a short NZD/CAD position, targeting a move towards 0.7830.

Key Reasons for the Bearish View:

  1. Unimpressive Inflation Data:

    • The 3Q inflation data for New Zealand was weaker than anticipated.
    • The market has, for the most part, ruled out a rate hike in November. HSBC expects the NZD Nominal Effective Exchange Rate (NEER) to stay pressured unless the 3Q labor market report is significantly positive.
    • Long-term, HSBC foresees a convergence in the rate cut outlook between the Federal Reserve (Fed) and the Reserve Bank of New Zealand (RBNZ).
  2. General Election Results and Fiscal Policy:

    • New Zealand's general election results will be made official on 3 November. Depending on the formation of the coalition, there might not be a budget update until the end of December.
    • Potential coalition candidates for the National Party, ACT and NZ First, have indicated a fiscal policy that's slightly tighter than what the National Party proposes. This provides no immediate support for the NZD.
  3. Vulnerability to External Factors:

    • Absent substantial idiosyncratic support, the NZD is highly susceptible to U.S. exceptionalism, risk aversion, and a possible intensification in Middle Eastern geopolitical tensions.

Trade Idea: HSBC recommends a short NZD-CAD position, capitalizing on Canada's relative economic robustness and a potential surge in oil prices. This position also ensures neutrality regarding the evolving risk appetite.

Conclusion: The New Zealand Dollar (NZD) faces headwinds from multiple fronts, leading HSBC to adopt a bearish stance. Key concerns include weak inflation data, potential shifts in fiscal policy post-elections, and increased susceptibility to global risks. The bank is leveraging these insights with a short NZD-CAD trade idea.

HSBC Research/Market Commentary


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