1. FX Outlook
  2. FX Options Weekly

Macro and Vol Commentary

New Zealand Economy

New Zealand managed to avoid technical recession in 2023 but economic performance continues to underperform.

  • GDP growth in Q2 beat expectations, growing at 0.9% QoQ compared to a revised flat reading in the previous quarter.
  • Business PMI contracted for the sixth consecutive month in August, decreasing to 46.1 from 46.6 a month before.
  • Growing global uncertainty and lacklustre demand, particularly from China, led to a fall in new orders.

Retail sales adjusted for inflation fell 1% QoQ in Q2 2023, representing the third straight quarterly contraction.

  • Consumers cut back spending as elevated prices and high interest rates reduce disposable incomes.
    The labour market continues to show signs of softening, with the jobless rate ticking up to 3.6% in Q2’23 from 3.4% recorded in the previous quarter.
  • The Q2 reading is the highest since 2021.
  • We expect the labour market to soften further in the face of high borrowing costs which lead to lower demand.

New Zealand consumers are struggling under the weight of higher prices and elevated interest rates.

  • Albeit softening to 6% in Q2’23, inflation remains elevated.
  • Annual wage inflation slowed to 4.3% in Q2’23 from 4.5% in the previous period as the job market continues to soften with more foreign workers entering the country.
  • The country has experienced strong migration in the past 12 months after reopening its borders following Covid.

High interest rates and the rising cost of living have become hot topics before the election on October 14 with opposition parties promising to cut spending to help central bank bring inflation under control.

  • The preliminary results show the opposition centre-right National Party gained the largest share of vote, bringing the end of the Labour party-led government.
  • Official results will be released on November 3.


Since October 2021, the CB lifted interest rates by 525 bps in its fight against inflation. In its latest meeting, the CB held the cash rate unchanged at 5.5%.

  • The policymakers reiterated the importance of bringing consumer price inflation to the 1% to 3% target range, announcing that interest rates will need to stay elevated for longer.
  • While markets expect further tightening with forward swaps pricing in 30% chance of a 25bps rate hike by April 2024, we believe the hike is unlikely to materialise given weakening economic data.
  • In line with the US, we expect the interest rate to remain elevated at 5.50% until enough evidence suggest inflation is on the path of softening to the target level.

New Zealand’s economy has been much quicker in responding to the tightening cycle than the US: retail sales declined significantly, the labour market softened, and overall sentiment remained muted. As the economy cools down under pressure of elevated interest rates, we expect the tightening cycle to be over and for policymakers to stick to higher-for-longer rhetoric until the year-end. As of now, instead of looking at the overall state of each economy the markets are comparing economies relative to each other. Given continued strength of the US economy, we expect downward pressures on NZDUSD to remain until the end of the year while the US dollar strength persist as “the last man standing”. We will likely see the pair hover around the 0.6 level in the next month.

Sources: S&P Global, Bank of New Zealand, Statistics New Zealand 

Volatility Comment

The RBNZ decided to leave official cash rate on hold at 5.50% agreeing to remain restrictive for longer to cool inflation. New Zealand’s economy avoided a recession this year with stronger than expected GDP growth in H1. Labour market is still tight and the recent rise in oil prices have increased upside risks in the near term. However, RBNZ were relatively dovish in their statement and highlighted medium term risk to the economy of weaker demand from China pressuring commodity prices and NZ export revenues.

There is evidence of seasonal demand in NZDUSD. NZD performed strongly at the start of Q1 in the past 5 years and we expect this to continue with the diverging rate paths into Q1 next year. 75bp of further hikes priced in by middle of next year in NZ and 25bp of cuts priced in the US. Giving NZD a positive carry.

Therefore, we see an opportunity to short the NZDUSD at a higher level in the near term before resuming the recent downtrend in the medium term. We will BUY NZDUSD put with a Knock In at a higher level.

NZDUSD Trade Idea

  • BUY NZDUSD American Knock In
  • Up and Knock In 0.6100
  • Put Strike 0.5900
  • 3 month expiry
  • PAY 0.52% of NZD notional

Positioning Charts

EURUSD Vanilla Positioning Data 28/09/2023 - 05/10/2023

During the week ending October 12th, there was a shift in the positioning of EURUSD options towards the right, following moderate gains in the currency pair. However, the extension of both the upside and downside covers suggests a weakening conviction for the prices outside of the current range. This is further confirmed by the equal notional amount and size of both calls and puts for the upcoming expiry. It seems unlikely that the pair will break out of the current range in the near term, as momentum is expected to remain lacklustre.

Eurusd 28 5

EURUSD Vanilla Positioning Data 05/10/2023 - 12/10/2023

Eurusd 5 12

USDCNY Vanilla Positioning Data 28/09/2023 - 05/10/2023

During the week ending October 12th, there was an increase in the number of USDCNY options being traded. Specifically, there was a rise in the number of options that expire in the near-term, and the number of call options was higher than the number of put options. This suggests a slight preference for the pair to move up. However, the overall size of the trades decreased, indicating a lack of conviction in the current range. This is further highlighted by an equal number of upside and downside covers. Based on these trends, we anticipate that the pair will experience a slight uptick in the near future.

Usdcny 28 5

USDCNY Vanilla Positioning Data 05/10/2023 - 12/10/2023

Usdcny 5 12 (2)

NZDUSD Vanilla Positioning Data 28/09/2023 - 05/10/2023

During the week ending October 12th, the range of NZDUSD option positioning became tighter, with the pair trading between 0.57 and 0.62. The number of calls declined, while the size of notional puts grew, indicating a potential shift in trend in the near future. The downside momentum appears to be increasing further down the curve.

Nzdusd 28 5

NZDUSD Vanilla Positioning Data 05/10/2023 - 12/10/2023

Nzdusd 5 12

Charts and Tables

FX Expiries

Expiry (61)

Historical Spot FX Volatility (30D Rolling)

Chart (50)

FX Matrix (today)

Spot (108)

Weekly Change

Week (90)

Key Events & Releases




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