Date: 24 Jan 2018

One of the intriguing aspects of last Friday’s US Commodity Futures Trading Commission data, for the week ended Jan 16, was that amid all the evidence that speculators were retaining a net short US dollar position, against the New Zealand dollar or kiwi, the data showed a net short kiwi/long US dollar position. Admittedly the size of that long NZD position, which had been 11 thousand contracts at the end of the previous week, was reduced to 8 thousand but nevertheless it remains, even as the overall net short US dollar position derived from the CFTC data rose to its highest level since mid-October. On Monday one US bank still felt that being short NZDJPY had its merits.

But is it possible that traders may wonder whether general US dollar weakness, if it persists, could prompt a rethink among those with this exposure? And if so what might be the catalyst?  General US dollar underperformance already means the NZDUSD is higher now than when that CFTC data was collated on Jan 16. Recent higher dairy prices may also have given the NZD some support given New Zealand’s position as the world’s largest exporter of milk. But there’s also data risk surrounding the 2145h London time release on Thursday of New Zealand’s fourth quarter Consumer Price Index (CPI) figure to consider. The market consensus is for a 0.4 per cent rise in Q4 2017, down from the prior quarter’s 0.5 per cent but there may be some changes to the CPI weightings which could affect the data. Traders may wish to keep an eye on this data release. It’s just possible the market is underestimating the possibility that this CPI number comes in above expectations, potentially unnerving remaining kiwi bears.

Written by Neal Kimberley, External Currency Analyst.