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Macro and Vol Commentary

USDNZD has recovered some of the ground lost in 2020, but as both Central Banks look to be hiking rates, which direction will the pair move.

Economic Data

  • NZ manufacturing data continues to increase and reached 53.7 December, and the reading increased following the lockdowns for NZ. Capacity utilisation for manufacturers is at its highest ever level due to high demand even though some parts of the economy were constrained. 
  • The wave of demand during COVID-19 continues to cause backlogs in the global supply chain, and we expect these to ease in mid-2022. Demand has softened and been masked by the backlogs for some time now. 
  • We expect underlying economic growth to increase, driven by accumulated savings, expansionary monetary policy, tight labour markets, and rising house prices. 
  • Capacity pressures will continue to tighten in the coming months as Omicron rips through the country; this will detriment the economy. Workforces will be reduced due to isolation, dampening sentiment. 
  • The unemployment rate is expected to decline to 3.3% in Q4, but we may see some short term rises in unemployment due to Omicron. 
    1. Same-job wage growth increased to 2.5% in Q3 2021. Broad-based demand for labour should give further rise to earnings, which are forecast to be 1% for Q4. 
    2. The 25-34 age bracket have been particularly impacted by the COVID and are the most unemployed.
    3. Maori and Pasifika are ethnicities with the highest unemployment, which has been the case for many years. 
    4. According to the Reserve Bank of New Zealand, due to the restriction of foreign labour, wages will increase as companies look to retain staff.
  • CPI has increased to 5.9% in Q4 2021, commodities prices are still supported, and this will cause inflation to rise further Shipping rates are also high and will not ease in the immediate term. 
    1. Food prices are rising, increasing 0.6% in December, and we expect this trend to continue. 
  • Credit Card spending increased M/M in December by 0.2%, with the Y/Y figure at 1.2%. The M/M figure was considerably lower than November at 4.5%, revised to 3.1%. Savings accumulated should keep credit card spending relatively low. 
    1. Saving deposits have continued to increase. They stand 117,639m as of December 2021.
  • Mortgage rates are increasing, with is a withdrawal from the economy. 5,3,2 year rates are back at 2019 levels with 1-year rates at 2020 levels.
  • Housing lending growth has slowed, rising 0.7% m/m to NZ$2.2bn; Y/Y growth has continued to slow at 10.5% after peaking at 12.1% in July. 
  • Government debt has continued to rise, with government bonds at 52,221m nominal bonds at 46,137m. 

Central Bank

  • The percentage for rate hikes in February, April, May, and July are all above 100%. The implied rate for August stands at 2.097, with a 92% of a rate hike in that month. 
  • The market is pricing in rate hikes down the curve, and if the central bank does not oblige, there is a downside to NZD. The bank has highlighted that higher rates are needed to achieve their inflation and employment goals.
  • NZ FX reserves ex-gold have started to rise once again after the sell-off during COVID, standing at 16,114m, increasing from 12,321m in June. 
  • Monetary conditions have decreased in recent months, suggesting a less accommodative environment due to a weaker exchange rate and the expectation of higher interest rates. The monetary conditions index stood at 508.3 as of February 1st, the lowest since October 2021.
  • The bank's balance sheet continues to increase, but as monetary conditions decline and interest rates rise, we could see asset increases start to slow as well. Assets were 89,180m as of December 2021, of which currency was 7,856m, and securities were 66,315m. 

Both the Fed and RBNZ are on a tightening path, and we expect RBNZ to move first, which could trigger some near term strength in the currency. Our base case is for 5 rate hikes from the Fed this year and for USDNZD to continue to trend higher as the dollar firms. Near term risks to both countries due to Omicron are prevalent, but we could see more downside risk to NZ; however, cases in NZ are comparatively low. NZ has a high vaccination rate of 77.2%, which should suppress the hospitalisations. We expect to see near term strength in NZ as the currency benefits from hiking rates before the Fed, which could trigger losses back to 1.50. The 50 DMA is considerably below the market at 1.477, which we do not expect the market to test. The longer-term target on the upside is 1.55; in our opinion, USDNZD will correct the downside immediately, but we favour 1.50 as an entry point.  

Volatility Commentary

Both FED and RBNZ have recently turned hawkish as inflation concerns have materialised, and tightening in the job market. The market is now pricing four to five rate hikes in 2022 on both fronts, with RBNZ expected to act earlier and give some upside to NZD in the near term under the Carry component. Nevertheless, we expect this effect to reverse due to a firmer USD in the medium term. In fact, we note Implied Volatility has been realising lower in the last four months, favouring a structure net selling Volatility over the next 2 months, in light of a choppy market trend in favour of USD.

USDNZD 1-month Realised and Implied Volatility

USDNZD Trade Idea 

  • In 2 Months (Exp 06-Apr-2022)
  • Sell KO USD Put / NZD Call in USD 5mio, 1.6 Strike, 1.48 Barrier – Rec USD 51K Circa 
  • Buy EKI USD Call / NZD Put in USD 3mio, 1.5 Strike, 1.55 Barrier – Pay USD 41K Circa
  • Total Structure Net Receive USD 20K Circa (Spot ref 1.51)

Positioning Charts

USDBRL NDO Positioning Data 18/01/2022 - 25/01/2022

While the positioning data for both charts indicate that there is a modest preference to the downside for USDBRL, Chart 2 shows weaker momentum. Options expiry in the near term suggests that the market could weaken further, the range stands at 5-5.50 for puts and there is little upside cover. Call options trade a narrow range with few expiring in the near term. We expect further weakness in the near term. 

USDBRL NDO Positioning Data 25/01/2022 - 01/02/2022

USDCNY Vanilla Positioning Data 18/01/2022 - 25/01/2022

Liquidity is thin in both charts due to Chinese New Year but there is still a preference to the downside, on a volume basis. The range on the downside is thin with no cover below 6.25, however, the upside range is 6.35-6.50. The outlook suggests further consolidation in the near term but we expect more volume in the coming weeks to outline conviction in the market. 

USDCNY Vanilla Positioning Data 25/01/2022 - 01/02/2022

NZDUSD Vanilla Positioning Data 01/12/2021 - 01/01/2022

There is a modest shift in options positioning shows a strengthening dollar, the Fed has become more hawkish and the USD has been bid. Even though volumes are thin but there is a marginal skew to the downside for options, however, the notional values are low suggesting less conviction. We anticipate spot to find strength in favour of NZD in the immediate term before USD strengthening as per the options data. 

NZDUSD Vanilla Positioning Data 01/01/2022 - 01/02/2022

Charts and Tables

FX Expiries

Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change

Key Events & Releases

Technical Analysis

JP Morgan Global FX Volatility 


The index has improved in recent sessions as it continued to fluctuate around the 50 MA level; the index is now at 7.37. The stochastics are diverging on the upside, and the MACD diff just converged on the upside, a strong buy signal. The 100 MA at 7.30 has created support for the prices, and if the index is to break below this level, it could trigger losses to 7.20. Conversely, the resistance levels at 50 and 200 MA at 7.41 are robust, and if these levels are broken, we could see the index gain ground to 7.59 before 7.68 in the longer term. The 100 MA is about to cross below 50 MA, which would form a death cross and limit the prices on the upside. We expect the index to struggle above these levels. 

Dollar Index 


In recent days, the dollar index has found support at 100 MA after protracted selling pressure cooled. Today, however, the index breached both the 100 and 200 moving averages at 96.00 and continues to break lower at the time of writing. As a result, the %K stochastic has flipped back to the oversold and is about cross below %D, while the MACD diff is negative and diverging. Bearish engulfing pattern and the size of the candle body is indicative of strong selling pressures today, but if that momentum is to hold, the index needs to break below 95.50 and then target a 61.8% fib level at 95.23. On the upside, the 100 MA and 95.90 and 200 MA at 96.01 are now resistance levels that the index would need to break above to suggest a reversal of bearish momentum. Given the scale of today’s decline, we would expect to see moderate gains in the near term to recoup some of the losses that we saw today.



The pair has improved so far in the first couple of days in February and has breached resistance at 50 MA, and now stands at 0.6670. The stochastics have converged on the upside and now on the rise, with %K overbought once again. Likewise, the MACD diff is positive and diverging, suggesting we could see the index push higher in the near term. The index needs to hold above the MA support before targeting 0.6702 and 100 MA at 0.6707. The three white soldiers candle formation taking place today is another signal that there is more upside potential in the near term. On the downside, rejection above 0.6650 could trigger a break of support back below 50 MA down to 0.66. The indicators and the bullish candle formations point to a strong appetite for higher prices in the near term. 



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A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

Please contact the author should you require a copy of any previous reports for comparative purposes. Furthermore, the information in this report has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Data in this report has been sourced from Bloomberg unless otherwise stated. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy.

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