Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Chief Macro Strategist
Market Specialist
The Reserve Bank of New Zealand (RBNZ) has recently adopted a dovish stance due to weakening economic indicators. CPI data released on Tuesday confirmed that inflation has eased more than expected in Q2, with 0.4% quarterly increase and 3.3% yearly increase, below the central bank forecasts of 0.6% and 3.6% respectively. This may give RBNZ more confidence to cut rates sooner than what the market is expecting. Meanwhile, in the US, June retail sales data came in unchanged and boosted investor sentiment for rate cut in September. Political tensions are also rising as the US Presidential elections draw closer in November. Recent assassination attempt on Trump has improved his chances of winning the elections, which could lead to stronger demand for the safe haven USD. NZDUSD has strengthened despite softer headline CPI, and currently trading above 0.6075.
A dovish hold from the RBNZ at the July meeting, coupled with lower-than-expected Q2 inflation print has paved the way for earlier and more substantial rate cuts by the Reserve Bank of New Zealand. Evidence of demand weakness can be seen in the recent contractions in manufacturing PMI and consumer confidence, but the market still expects RBNZ to start cutting rates only in October. This leaves scope for some further dovish repricing in the RBNZ curve if further economic weakness was evident, and this could bring headwinds for NZD. However, markets are also very focused on a potential start of the Fed rate cut cycle in September which could keep the US dollar on the backfoot. As such, kiwi weakness may remain more pronounced on the crosses, especially against the Aussie dollar where rate hike chatter is still alive.
Buy Put/Sell Call for 1 month
Buy Put/Sell Put/Sell Call for 1 month
Scenario Analysis comparing pay-offs of Sell Spot vs Sell Call vs Collar vs Seagull for 1 month for a notional value of NZD 100k
Buy Put/Sell Call for 3 months
Buy Put/Sell Put/Sell Call for 3 months
Scenario Analysis comparing pay-offs of Sell Spot vs Sell Call vs Collar vs Seagull for 3 months for a notional value of NZD 100k
Buy Call/Sell Put for 1 month
Buy Call/Sell Call/Sell Put for 1 month
Scenario Analysis comparing pay-offs of Buy Spot vs Sell Put vs Collar vs Seagull for 1 month for a notional value of NZD 100k
Buy Call/Sell Put for 3 months
Buy Call/Sell Call/Sell Put for 3 months
Scenario Analysis comparing pay-offs of Buy Spot vs Sell Put vs Collar vs Seagull for 3 months for a notional value of NZD 100K
Important disclaimer: The impact of swaps is not taken into consideration in the scenario above. The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and consider their unique financial situation, risk tolerance, and investment objectives before making any decisions.
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