TWI’s, NZD/EM, AUD/EM, GBP/EM

Every 5 years, central banks complete reviews to Trade Weight Indices and annual reviews to include or eliminate currencies based on trade. Normally, the threshold is 1% trade to inclusion or elimination decisions based on annual reviews. What changes yearly are the weights in the index assigned to each currency. The 5 year overhaul is a complete revamp to a trade weight index so to change the base period by addition of 5 years and to include or eliminate certain currencies.


The BOE maintain 2 indices, a Broad and Narrow to include major and minor trade partners in line with the Fed’s Nominal and Other Trade Partner Index.


The trading methodology is a depreciating currency in the index such as AUD will trade higher as AUD dropped against its major trade partners. But that’s the old method. My way is view as many currencies against the main currency whether its in the index or not because it covers many more currencies not in the index.


Best index construction is Laspeyres and use equal weights rather than as assignment to weights based on major or minor trade partners. A better performance to the index will be seen with specifics to percent movements and eyeball view which currencies moved most or least.


The RBNZ Trade Weight index includes the major currencies and: KRW, CNY, MYR, IDR, THB, SGD, INR and PHP, Philippines Peso.


NZD/EM


NZD/CNY is oversold but not to any degree to immediately jump on a trade yet NZD against 11 currencies and many not in the RBNZ Trade weight index, is massively oversold to extremes. Not only is NZD/USD oversold against the majors but deeply oversold to EM currencies. This concept offers a broader view and many more trades while the TWI lacks to effective oversold and overbought readings.


NZD/CNY Watch 4.4969
NZD/CZK targets 14.9680
NZD/DKK targets 4.3908


NZD/HUF targets 207.86
NZD/ILS targets 2.2467
NZD/MYR targets 2.9337

NZD/PHP targets 34.85
NZD/PLN targets 2.6885
NZD/RON targets 2.9063


NZD/RUB targets 51.43
NZD/SGD targets 0.9455. Note similarities to NZD/CAD


NZD/ZAR Overbought targets 10.1776.


AUD/EM


AUD is also massively oversold to 15 currencies and many currencies not in the RBA’s TWI.
RBA currencies to TWI: CNY, KRW, SGD, INR, THB, MYR and IDR.


AUD/BRL oversold
AUD/CNY targets 4.7164
AUD/CZK targets 15.7638


AUD/DKK targets 4.6088
AUD/HRK targets 4.6443
AUD/HUF targets 218.13


AUD/KRW targets 848.2348
AUD/MXN no trade
AUD/MYR targets 5.0841


AUD/PLN targets 2.8316
AUD/RON targets 3.0514
AUD/RUB targets 54.51


AUD/SGD targets 0.9963 Note AUD/CAD and NZD/CAD


AUD/THB targets 24.06
AUD/TRY targets 6.1348.


GBP/EM


GBP/EM ad GBP/USD is oversold yet not to the degree of AUD and NZD.
GBP/CNY targets 8.9326
GBP/CZK targets 29.7901


GBP/DKK Short tops
GBP/HUF targets 411.7509
GBP/INR targets 102.3060


GBP/IDR targets 19820.9236
GBP/ILS targets 4.4534
GBP/RUB targets 101.9537


GBP/SGD targets 1.8664
GBP/ZAR targets 204959

Brian Twomey

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