Monday, January 22, 2007
It is time.
Judgement week for carry has come and gone, the carry trade remains intact, and Macro Man still has nothing on. The RBNZ meets on Thursday, and Macro Man sees little chance that they can do anything but stand pat. Given that there is still roughly a 25% chance of a rate hike price in, that would presumably lead to a sell off in NZD.
However, the reaction of kiwi is in the face of uniformly dovish data last week ( below consensus CPI and retail sales readings) suggests that it is the level, rather than the change, in interest rates that is keeping the NZD afloat. The kiwi might be a flightless bird, but it can still hitch a ride on a 747, which seems to be the case at the moment.
Nevertheless, it seems silly to gamble on the RBNZ. Similarly, Macro Man thinks sterling has been driven higher by a one-off shift out of dollars and into pounds, and he has little appetite to the the last guest at that particular party.
He therefore will dip his toe in the beta plus G10 carry trade by selling $20 million versus the AUD ( 0.7889 to 02 Feb) and buying $20 million versus the CHF (1.2485 to 02 Feb.) AUD/CHF itself is at levels that seem extraordinarily high by the standards of history, but at least there is relatively little event risk on the horizon.
At the same time, it looks like oil is finally bouncing. Macro Man had to scrape his windscreen for the first time all year this morning, so the weather is turning more supportive. Meanwhile, $50 is clearly a key psychological level on crude. Macro Man will therefore book profits on his June 53 puts at 2.75 today, and perhaps look to buy some calls on a dip in crude.