AUD/NZD And Long NOK, SEK vs. GBP‏

Two trades closed: (i) long AUD/NZD was stopped out for a 1% loss overnight as NZD jumped on the RBNZ statement and (ii) we book an early 1.4% profit on our long NOK, SEK vs GBP spot trade from 15 August 2012.

Long AUD/NZD Stopped Out With A 1% Loss
Reserve Bank of New Zealand (RBNZ) last night kept its cash rate unchanged at 2.50%, as widely expected, but the accompanying quarterly Monetary Policy Statement wasfairly hawkish – much more than both we and the market had expected. Despite the weak global economic backdrop the RBNZ is fairly upbeat about the construction-driven rebound fuelled by last year’s Canterbury earthquake. Our long AUD/NZD trade (opened 15 November 2012) was stopped out after the RBNZ announcements as it briefly dropped below 1.26 (intraday low 1.2589); the pair has since recovered on strong Australian employment data, however. We book a 1.00% total loss (including a +0.04% carry).

On top of this, the ministry of finance has amended the RBNZ mandate to now increasingly focus on financial stability: in the new Policy Targets Agreement price stability remains the primary objective but RBNZ now has to explicitly ‘monitor asset prices’ and have to ‘regard to the efficiency and soundness of the financial system in pursuing price stability’. This is yet another example of the increased focus central banks now place on macro-prudential matters, leaving them more hawkish in a situation with a booming property market than would otherwise have been the case. With the new RBNZ mandate and a newly appointed governor, Wheeler, in place the RBNZ reaction function appears to have been tilted in a somewhat more hawkish direction than we previously looked for. This suggests to us that rate cuts are likely not in the cards for New Zealand any time soon, whereas this is still the agenda in Australia. As a result, we now see less potential for AUD/NZD to move higher in the near term.

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