On Friday's Money In Motion show, we reviewed a trade I have on down under.
Here's an update.
Back on July 15, I recommended selling the Australian dollar against the kiwi, and we went back to the trade on Friday's show.
The recommendation was:
SELL AUD/NZD @ 1.2650
TARGET = 1.2150
STOP LOSS = 1.2825
Here's the whole conversation on videotape.
This was a bet on softening China PMI numbers (which would be negative for Australian exports) and a bet on interest rate differentials between Australia and New Zealand narrowing in favor of New Zealand. Both happened! China HSBC Manufacturing PMI for July was 49.3 and the interest rate spread between Australia and New Zealand narrowed by 75 bps.
I still like this trade.
There has been very little negative price reaction to the big risk-off move since July 15th, and this means there is still strong potential for this trade to work.
The only element of the trade we didn’t discuss was that the roll on the position is .76 per day, which works out to be around 24 pts over the time frame. For the position, this means you are short at 1.2626.
Standard & Poor's maintained New Zealand's unchanged at AA+, and we had New Zealand building permits +13% for July.AUDNZD is currently trading around 1.2550. On August 31st, we’ll get the final HSBC PMI data out of China and it should be worse than the flash 49.3.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a contributor to CNBC's Money in Motion Currency Trading.You can comment on his piece and