FX Trade Idea of the Week G10: Long NZDUSD : EM: Short USDTRY : Week of 29 Aug 2016

From the FXWW Chatroom: G10: Long NZDUSD .
Rationale: We think higher-yielding currencies in G10 can tactically strengthen against the USD. NZD provides the cleanest near-term pairing, in our view. This week’s economic data calendar in New Zealand is lighter than Australia, and there are no scheduled RBNZ speeches this week either (whereas RBA Deputy Governor is speaking on Wednesday). While markets may be cautious of chasing AUDUSD strength into the soon-approaching RBA meeting (6 September), the RBNZ is relatively far away for now (21 September). There is also no noise from Fonterra milk auctions next week – the next scheduled auction is on 6 September. The main risk to this trade is if markets retrace towards broad-based USD strength.

Rationale: Political uncertainty is elevated across the board in EMEA, including in Turkey . However, the risk of such headlines escalating further over the next one week seems contained in Turkey compared to some other EMEA currencies, in our view. The market has already digested several developments in Turkey over the last fortnight without the lira coming under heavy pressure, and we think such headlines may be quiet for the near-term. The central bank rate cut decision took place this week, the market has already ‘learnt’ about the new surprise turn in the geopolitical agenda, and Fitch already provided its outlook review last week. Moreover, the lira is typically quite sensitive to dovish turns by the Fed. The main risk to this trade is if the USD still performs well against currencies where medium-term political risks are elevated.  [CS]

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