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Looking for relative value in GBP/NZD

Wed, Apr 16 2008, 12:03 GMT
by Danske Research Team

Danske Bank A/S


Summary and conclusions

• Despite unprecedented intervention by central banks around the world, financial markets remain under considerable stress. We continue to believe that the fundamental backdrop will lend support to JPY and CHF, just as we prefer currencies that are backed by hawkish central banks (NOK, EUR). Until the US can demonstrate either a clear trough in the economic cycle or a shift in sentiment regarding its financial sector we think the USD will have further to fall.

• EUR/USD has risen to new record highs, but appears to be overshooting fundamentals. Technically, the uptrend is well established, targeting new highs above 1.60, but a break below this week’s low at 1.5672 could very well see the beginning of a larger correction below 1.50.

• While the G7 made the first substantial change to the message on currencies since 2004, we consider the risk of intervention as modest.

• In the past seven months, GBP has fallen by 15% against the EUR and 13% vis-à-vis NZD. But the same set of fundamentals that triggered the slide in GBP now seems to threaten a similar decline in NZD. We consider the outlook for GBP/NZD and how to benefit from a rise.

    Published on  Wed, Apr 16 2008, 12:05 GMT


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