Bullish Kiwi Bets Pulled by Analysts Fretting Over Global Growth

Bullish Kiwi Bets Pulled by Analysts Fretting Over Global Growth

Strategists are rethinking their bullish wagers on the New Zealand dollar as the global spread of the delta coronavirus strain overshadows the central bank’s plans to reduce stimulus.

JPMorgan Chase & Co. and TD Securities think the kiwi’s rally against the Australian dollar may have run its course for now. Overnight-index swaps suggest that investors have pared expectations for the Reserve Bank of New Zealand to hike rates this year.

The growing reach of the delta variant is prompting investors to reassess the global growth outlook as nations from to the struggle to contain the outbreak. While there’s been no community outbreak of the variant in New Zealand, the kiwi may be especially susceptible to any swings in sentiment given the nation’s reliance on commodities exports.

“We are concerned that fears of the delta variant could scuttle confidence in the outlook —- at a time when the global growth is peaking,” Mazen Issa, a senior foreign-exchange strategist at TD, wrote in a research note. “This would undermine currencies where hawkish pivots have occurred more acutely.”

Both TD and JPMorgan advise investors to take profit on short Aussie positions against the kiwi. The pair traded near 1.0602 on Tuesday after sliding to a five-month low of 1.0553 the previous day.

Overnight index swaps show that the probability for two RBNZ rate hikes this year has fallen to 92% from a virtual certainty at the end of last week. The chances of an increase next month have dropped to 68% from 86%.

“With the global narrative evolving to a more risk-off tone, the asymmetry is now to near-term hikes by the RBNZ being de-priced somewhat,” Ben Jarman, an economist at JPMorgan, wrote in a note.

Both JPMorgan and TD stop recommending Aussie shorts vs kiwi

Concerns about delta variant could scuttle confidence, TD says