From BNP Paribas insights

Stay short NZD as RBNZ provides catalyst :
NZD is weakening this morning and should continue to fall further. The Reserve Bank of New Zealand (RBNZ) confounded
market pricing for hikes this year as early as November. At its February policy meeting It stressed that additional policy hikes
would add to tightening in financial conditions. The RBNZ surprised markets with an OCR path that forecasts steady rates
until early 2020. Markets were pricing around 35bp of tightening by the end of this year. We note that at its last meeting the
RBNZ reiterated that the NZD TWI needed to decline, and since then it has strengthened further. Our favoured short NZD trade
is NZDJPY (initiated at 82.6, targeting 78.60) is performing well following the RBNZ surprise and relatively lacklustre recent
trend in dairy prices – New Zealand’s principal export.

NOK is vulnerable to upcoming data releases :
EURNOK has recently reached lows last seen in 2015 at 8.9. Our BNP Paribas FX Positioning Analysis shows that NOK
currently has the joint longest positioning in G10 (+29 on a -/+50 scale). In our view the currency is vulnerable to any downside
surprise in the upcoming data releases and we remain bearish NOK in the near term. Norwegian Q4 GDP will be released on
Thursday. Our economists expect mainland GDP to increase by 0.5% q/q, slightly above expectations and higher than 0.2% q/q
in Q3. On Friday, the January CPI release will be key, and could be the trigger for the currency to weaken. The Norwegian
inflation rate peaked at 4.4% y/y in July 2016 and has been trending downwards since then. We expect it to decline to 2.9% y/y
(vs 3.5% y/y in December), in line with expectations. The Norwegian and Swedish inflation rates have been moving in opposite
directions in recent months. Whilst Norwegian inflation data are consistent with the Norges Bank maintaining a neutral policy
bias, with risk skewed towards further easing, we think the Riksbank will not announce an extension of its current QE program.

USD poised for recovery :
After trading firmly on Tuesday, the USD has retreated slightly today with US front end yields trending lower. We maintain our
view that the USD is poised for recovery and that risk reward for longs has improved considerably since the beginning of the
year. Our BNP Paribas Positioning Analysis indicates that the market is currently short USD (-14 on a -/+50 scale), down from
+22 in the beginning of this year. Therefore, there is a lot of room for new long positions to be added. We continue to favour
long USD positions vs. commodity exporter currencies as these trades can do well in the event of a resumption of broad USD
strength or a continued unwind in risk sentiment. As we mentioned it in the Global FX Plus, the implementation of a border
adjustment tax could raise the long-term equilibrium (FEER) value of the USD by almost 10%, reducing valuation constraints as
policy divergence boosts the US currency. For more details about our views, please see the February edition of our Corporate
FX Monthly.


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