Morgan Stanley likes buying NZD/USD at 0.6400, target 0.6640, stop 0.6320 as its trade of the week.
The bank cites China's improved November PMIs, prospects of a U.S.-China trade deal and the New Zealand government's discussing increasing fiscal spending from 20% of gross domestic product to a 15%-25% band in its half-year fiscal update next week.
Short-covering may also play a part; CFTC data suggests NZD short positioning is near its historical high.
They also note bright spots in recent data, with New Zealand house prices stabilising and business confidence rebounding.
Morgan Stanley prefers NZD against USD on expectations US ISM manufacturing will come in lower than expected and the non-farm payrolls report on Friday to come in mixed.
Seasonality also works in favour of the trade – since 1990, NZD/USD has appreciated by an average of 0.9% in December 66% of the time.
The risk to this trade is a significant sell-off in risk appetite.
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