Leveraged funds hold historic short positions in NZD as doubts grow over 100bps of RBNZ rate hikes priced for the next year.
Leveraged funds have built a record short position in the New Zealand Dollar, reaching extremes not seen since 2006. The move comes despite market pricing nearly 100bps of Reserve Bank of New Zealand tightening over the next 12 months, clashing with softer labor data that suggests economic slack is rising.
The unemployment rate climbed to 5.6% in the latest print, up from 5.4%, even as employment growth remained strong. This points to increased labor supply and weaker demand, casting doubt on the RBNZ’s ability to deliver aggressive hikes. Year-to-date, NZD ranks as the third-best performing G10 currency, trailing only NOK and AUD.
A more attractive yield profile in Australia continues to support AUD/NZD, though potential El Niño-related terms-of-trade benefits could limit further NZD downside. The tension between RBNZ policy expectations and extreme short positioning remains a key focus for traders.