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Thread: Shorting the NZ Dollar

  1. #1
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    Default Shorting the NZ Dollar

    I see that it is now possible to short the NZ dollar against other currencies e.g. the GBP with an ETF.

    http://www.etfsecurities.com/en/upda...Fact_Sheet.pdf

    I am not a gambling man, but I was thinking of having a small flutter, perhaps in a week or two as the pound continues to drift lower.

    Has anyone used this ETF? I am just concerned it might be a little iliquid and perhaps difficult to trade.

  2. #2

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    It is my understanding that it's always possible to do this, (spot rates, forward contracts etc with the forex companies?) however the problem is deciding your stop loss and how do you know when it has actually bottomed out without a crystal ball? The market's so scary at the moment; Volatile? Slide more like.

    Good luck. Keep us updated. And thanks for the link.

  3. #3
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    I don't know of any indicators that show real weakness of the NZD. From what i've seen it's a lot easier to short on something you're more familiar with than to make a gamble with so many variables.

    Wall Streets issues IPOs of many companies with very weak business plans. Fly by nighters where the companies have no 'real' valuation. Lately i've been reading about an online coupon company called Groupon:

    http://www.reuters.com/article/2011/...7576UH20110608

    "There is no rational math that could possibly get anyone to the valuation Groupon thinks it deserves," the analyst wrote in an open letter to potential investors. "This IPO game isn't about finding value, it's about finding a greater fool who actually believes the valuation is true. Trust me, you will be the fool."

    You would have better luck shorting this stock over the long term because the fundamentals don't add up. However, finding a brokerage firm that would have an inventory of stocks so that you can short on is difficult.

    and don't forget, hind sight is 20/20

  4. #4
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    you could find yourself peeing into the wind


    The New Zealand dollar advanced to a fresh record high of 0.8370 and the high-yielding currency may continue to push higher in the week ahead as the 1Q GDP report is expected to show a faster recovery in the isle-nation. Economic activity is expected to increase another 0.3% in the first three-months of 2011 following the 0.2% expansion during the previous period, and the stronger rate of growth is likely to spark a bullish reaction in the NZD/USD as market participants expect to see higher borrowing costs in the region.

    As Reserve Bank of New Zealand Governor Alan Bollard sees scope to gradually normalize monetary policy, market participants see borrowing costs increasingly by nearly 75bp over the next 12-months according to Credit Suisse overnight index swaps, and interest rate expectations may gather pace in the second-half of the year as the central bank adopts an improved outlook for the region. As the NZD/USD trades within an upward trending channel, the technical outlook for the pair remains fairly bullish, and the kiwi may continue to outperform against its major counterparts should the RBNZ continue to talk up speculation for higher rates. However, as the marked appreciation in the local currency curbs the risk for inflation and instills a weakened outlook for global trade, Governor Bollard may highlight the dampening effect of the higher exchange rate in an effort to temper to balance the risks for the region.

    Nevertheless, risk sentiment is likely to heavily influence price action for the NZD/USD ahead of the GDP report as the economic docket remains fairly light for the beginning of the week, and the kiwi-dollar could face a small correction in the days ahead as long as the relative strength index continues to hold below overbought territory. At the same time, we could see fresh record-high prices in the exchange rate should the growth rate top forecasts, and the bullish sentiment underlying the high-yielding currency may gather pace over the near-term as the economic developments show a strengthening recovery in New Zealand.
    Last edited by IanR; 10th July 2011 at 06:04 PM.

  5. #5
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    Quote Originally Posted by Rabbit View Post
    Has anyone used this ETF? I am just concerned it might be a little iliquid and perhaps difficult to trade.
    Looking at the last few trades it would seem that it's rarely traded:
    http://www.londonstockexchange.com/e...HSG97JEGBXETCS

    Liquidity ought not to be a problem but finding a broker who you can trade it through may be? I find automated, and hence cheap, trades in rarely traded stocks are not always possible.

  6. #6
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    My thinking was that this is something that (as an ETF) could be held for a reasonable length of time. e.g. after making an investment the gain or loss is not realised until you try to sell.

    On that basis, an investment could be made on a premis that eventually, e.g. within the next two years we could expect to see the differential between the NZ Dollar and other currencies e.g. the GBP or US Dollar (another fund option) narrow.

    I guess there is a 50/50 chance of being right either way, and that the current differential between currencies is an outlier (in terms of statistical standard deviation) compared with the norm?

    From what I have read, ETF's that do not trade very often tend to have wide spreads.

    Just for a bit of fun, I am noting todays price here based on Ian's link at 4,280.50 and we can use the link above to see how it is all doing in six months time or even further off into the future when looking back at this thread.
    Last edited by Rabbit; 11th July 2011 at 01:40 AM.

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