The New Zealand Dollar (NZD) is gaining the most of the major currencies today, strengthening in the morning to USD by about 0.5 percent.
The rate increase followed the statements of the Governor of New Zealand's central bank. Adrian Orr said he is pleased with the result of the August interest rate cut and added that according to the current view of the Reserve Bank of New Zealand (RBNZ) it will not need unconventional monetary policy tools. With the effective impact of interest rate cuts, the need for, for example, QE in New Zealand has definitely decreased, which disappointed market bears.
According to news agencies, NZD sellers started to cover their short positions, as chances for further monetary easing were reduced. And here we get to the point that there is a lot to cover when it comes to short positions at NZD. We can see it based on the COT report published by the American CFTC commission.
NZD non-commercial net positions. Source: tradingster.com
According to these data, the advantage of short positions over long positions among speculators that we are now observing has not been so huge for at least a decade. This means very bad sentiment or a very high oversold level for NZD. Then it's always worth asking yourself who else can sell, since so many have already sold – in this case, the contract for NZD.
Such advantage of short positions when market conditions change and attitudes of e.g. the central bank may lead to the phenomenon of so-called short squeeze, i.e. very fast closing short positions by buying back contracts. In the end, "short squeeze" could lead to a sharp increase in the prices of the underlying asset, in the case NZD.
Daniel Kostecki, Chief Analyst of Conotoxia Ltd., a company from the group to which Cinkciarz.pl Sp. z o.o. belongs
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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