Kiwi tanks; NZDUSD Trade Idea

22 July,, Lagos – New Zealand, just like its largest trade partner- Australia continues to struggle with ailing economic conditions. Both countries are plagued mainly by the drop in commodity prices which has fallen 40 percent since the start of March, according to Global Dairy Trade. New Zealand being largely dependent of milk and dairy proceed, suffers from the drop in milk prices, while Australia has been hit by the drop in the drop in iron ore and mining activities.

Also, anticipation of further rate cuts from the RBNZ has further weighted on the currency, after falling 15 percent against the U.S. dollar this year so far o hit five-year lows. Haven already cut from 3.5% to 3.25% this year, the question still remains how much further down can the rate still go considering the existing slack in the economy.

NZDUSD Trade Idea

NZDUSD daily charts

The divergence in rate policies between the US and the NZD therefore creates an ideal scenario to short the NZDUSD pair. With the impending rate hikes from the US expected to come sometime this year, the NZD is also on deck to possibly cut rates further. Hence, it is expected that the kiwi will experience a wider interest rate gap, which may result in an exchange rate of 62 cents to 60 cents across the NZDUSD since the wider the gap between the divergence in rates between two countries, the greater the demand for the higher-yielding currency.

Technically, the pair has been in a major bearish trend for the most part of the year, having hit a five year low, with no end insight. Therefore, both technical and fundamental factors have converged to justify a sell on the NZDUSD.

Professional Views

Currency trader Kathy Lien of BK Asset Management said Thursday on CNBC’s: “Trading Nation.”That’s pretty disastrous, because it’s the lifeblood of New Zealand, so if their main export is falling in value, that’s going to have a direct impact on GDP as well as the incomes of farmers,” “So the currency trouble, and everyone thinks the Reserve Bank is going to respond with a rate cut next week.”

Neil Azous of Rareview Macro wrote to CNBC: “The professional community is short of both AUD/USD and NZD/USD, and in the latter case, they are record short,”

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