CAD vs NZD: Our Pick

This week will be a decisive one for both the Canadian and New Zealand government. The two central banks will come up with their new interest rate decision and provide guidance for the future. Here are some CAD and NZD pairs that may be worth considering to the long or short side.

EdgeFinder Analysis

CADJPY is at a +5 buy signal on the EdgeFinder in the midst of BOC interest rate decisions this Wednesday. With a 25 point hike expectation, CAD is looking increasingly hawkish comparatively to the yen. The loonie has JPY beat in every category except unemployment rate meaning that Japan's economy is doing better overall as a result of ultra-low interest rates.

With that said, the yen is looking stronger on the day as it has turned this pair in the red despite the looming BOC report. It's hard to say where smart money wants to take the asset, and retail is indecisively in the middle. The yen sees strength for now, but the question of how it will fair later on in the week remains.

Gold is tested by the dollar as price entered a strong demand zone on the 1D timeframe. Although price has not moved much, it seems to be stubbornly rejecting the lows from the $1880s and is forming higher lows. Price action will have to tell us where the metal wants to go, and so far it looks to be pushing for higher moves.

Smart money also had an increasingly stronger bias to the long side on gold. The bias for both dollar and gold is about the same in net positions, but gold saw a more drastic increase in the number of long contracts added to their positions.

According to EdgeFinder analytics, it is strongly leaning towards the kiwi for upside. And it is a fair argument for NZD due to their concerningly high inflation rate and aggressive RBNZ. However, both BOC and RBNZ are due for another decision this week. Expecations are that the kiwi remain at 5.5% while CAD will rise another 25 basis points.

So we can draw a conclusion that CAD might be more hawkish going forward. Traders looking to long this pair should also keep that in mind in case the pair enters some short term downside on a stronger CAD. So far, there is not enough evidence to say that CAD is stronger yet, so the bias remains strong bullish for NZD.

Retail Spotlight

Some strong biases from the crowd today - lots of bullish sentiment for the Aussie and Yen. NZD and CAD are mostly mixed or to the short side despite two relatively hawkish central banks. By glancing at these strong bearish biases against CAD in the AUDCAD pair, it might be worth looking at to the long side.

Here is an overview of last Friday's COT report. At the bottom is the positional bias that shows how long or short leaning smart money is on certain pairs. In this case, CADJPY is strongly positioned to the bulls who have been buying up CAD and shorting JPY over the last several months.

Fundamental Spotlight

Here are two chart forecasts for the CAD and NZD. They are projecting the expected interest rates going into the next four quarters which helps determine which central bank is more hawkish or dovish. The top chart is a forecast of CAD which is expected to hold at higher rates for longer than the kiwi. NZD is looking to start cutting by the start of next year whereas CAD is expected to cut later down the line in Q4 of 2024.