Trade of the week: Short EUR/NZD
NZD was one of the worst performers in G10 last week (just behind GBP). But we think the short-term bearishness is overdone. A November cut is now 70% discounted by markets and in any case NZD has been defying its rate dynamics for months (see Total FX, 1 Sep 2016). IMM data point to NZD positioning at its shortest since February, and that likely extended further after Tuesday. Meanwhile our RAT (risk aversion thermometer) is further in risk-seeking territory which should support a bounce in NZD. In Europe, data have been moderating with some emerging evidence of a weaker export climate, primarily in the UK. EU-related flow this week may also be EUR-negative.
· Short EUR/NZD position established at 1.5515
· Target 1.5100
· Stop at 1.5650
RBC (Royal Bank of Canada)