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19 Feb 2013
Forex Flash: Buy NZD/USD - Nomura
Nomura Strategist Geoffrey Kendrick has highlighted the fundamental reasons that his is structurally bullish NZD/USD.
He starts by explaining that exogenous flows (reinsurance related and to buy NZD government bonds) should continue to add around NZD 2-3bn to the quarterly basic balance this is enough to create a wedge between the terms of trade and NZD, similar to that witnessed previously in AUD. Also, the Christchurch rebuild (now estimated to be approximately 15% of annual GDP) is ramping up, adding inflationary pressure at a time when loose credit conditions are already having an impact on house prices. Also new RBNZ Governor Wheeler has been more willing to “look forward” publicly to detail the building inflationary consequences of the Christchurch rebuild.
Looking back towards markets, Kendrick notes that NZ 3yr swap rates were approaching AU 3yr swap rates (now above). In the past this has generated interest in NZD from Japanese investors. Further he adds that Government asset sales should generate further inflows to buy NZ equities. Also he sees that NZD is not that high when he uses a trade-weighted index rather than the RBNZ TWI (which is not trade-weighted).
He finishes by commenting that very strong Q4 retail Sales have added to his conviction and he is actively looking for an opportunity to get long. He feels that the dip over the past 24 hours provides that opportunity, particularly ahead of tonight's RBNZ Governor Wheeler speech. Kendrick recommends going long at 0.8445, for a target of 0.8843, with a stop of 0.8200.
He starts by explaining that exogenous flows (reinsurance related and to buy NZD government bonds) should continue to add around NZD 2-3bn to the quarterly basic balance this is enough to create a wedge between the terms of trade and NZD, similar to that witnessed previously in AUD. Also, the Christchurch rebuild (now estimated to be approximately 15% of annual GDP) is ramping up, adding inflationary pressure at a time when loose credit conditions are already having an impact on house prices. Also new RBNZ Governor Wheeler has been more willing to “look forward” publicly to detail the building inflationary consequences of the Christchurch rebuild.
Looking back towards markets, Kendrick notes that NZ 3yr swap rates were approaching AU 3yr swap rates (now above). In the past this has generated interest in NZD from Japanese investors. Further he adds that Government asset sales should generate further inflows to buy NZ equities. Also he sees that NZD is not that high when he uses a trade-weighted index rather than the RBNZ TWI (which is not trade-weighted).
He finishes by commenting that very strong Q4 retail Sales have added to his conviction and he is actively looking for an opportunity to get long. He feels that the dip over the past 24 hours provides that opportunity, particularly ahead of tonight's RBNZ Governor Wheeler speech. Kendrick recommends going long at 0.8445, for a target of 0.8843, with a stop of 0.8200.