From the FXW Chatroom: BofAML’s FX Vol Strategist Chris Xiao believes the risk of a reversal of the recent strength in NZD this week is under-priced over the FOMC and the RBNZ today (10:00pm Lnd), where we expect them to remain on hold. Our Economist Alexandra Veroude and team expect the RBNZ to remain on hold but further easing is likely given the tight financial conditions. The crowded long NZD positions among the speculative community are most at risk if either the Fed is hawkish or the RBNZ is dovish as investors realize that exuberance has exceeded fundamentals. Our favorite pair to express this view is via AUDNZD where real yields imply a significantly higher level of spot. They recommend buying a 2m AUDNZD 1.05/1.08 ratio call spread in 1×1.5 for 0.45% aud (off 1.0325 spot).
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