Focus of the day:
The fall in the NZD has intensified with the sharp further fall in milk prices, low inflation reading last week, and some ebbing in economic activity. The market is now more than fully pricing in a 25bp cut this week, following a cut six weeks earlier, and has modest odds that the RBNZ will accelerate its easing by cutting 50bp. This indeed would be aggressive move, and while unlikely, is not out of the question.
With the market now fully on board the easing cycle in New Zealand, and significantly short NZD, the better trade may be to switch into AUD shorts. The chart below shows that the IMM futures market is in a record net short position for NZD.
AUD Net Short Positions Not As Stretched As NZD
Housing market indicators may be peaking in Australia and broad regulatory pressure may be damping the housing market, allowing room for the RBA to consider a rate cut to target a lower AUD. Key to this outlook will be Q2 inflation data and RBA governor speech this week.