Investors should bet the New Zealand currency will fall against its commodity-linked peer the Canadian dollar as the nation’s central banks diverge in policy outlooks, BNP Paribas SA said.
Enter the trade at current levels with the target of 78 Canadian cents per New Zealand dollar, Michael Sneyd, a currency strategist for BNP Paribas in London, wrote to clients today. The trade should be abandoned if the so-called kiwi rises to 82.20 Canadian cents.
New Zealand’s currency was 0.1 percent stronger against the so-called loonie at 80.94 at 3:09 p.m. in New York. It’s the best performer this year against nine-developed nation counterparts, according to the Bloomberg Correlation-Weighted Indexes.
BNP expects the Bank of Canada to raise benchmark interest rates in the second quarter of next year after the central bank said higher borrowing costs “may become appropriate” at a meeting April 17.
Odds of an increase in the central bank’s target lending rate by the October meeting were about 59 percent today, according to Bloomberg calculations on overnight index swaps. They were about 27 percent on April 5.
The Reserve Bank of New Zealand, which meets April 25, has warned that a strong currency may delay rate increases. As rises in inflation slow, the central bank is provided with a reason not to make policy changes, Sneyd wrote in the research note. Sneyd couldn’t be reached for comment.
The cross trade has broken below technical support at 81.20 and may develop a “double top,” Sneyd wrote. The pattern consists of two well-defined peaks with a moderate valley in between and a break of the neckline, the trough between the peaks, is often regarded as a bearish signal.