Going Short on Kiwi

Going Short on Kiwi

New Zealand dollar has been mostly led by its counterparts’ movements, as it generally rose against the Canadian dollar during the second half of 2014, and fell against the strengthening US dollar.  However while we need to keep a close eye on the leading countries’ economy to trade Kiwi,  with the Australia and New Zealand Banking Group (ANZ)’s business confidence coming up next Tuesday at 1 AM GMT (Monday night in New York) it’s a good time to take a look at the New Zealand economy as well to make the most informed trading decision.

Fundamental Analysis

According to Bloomberg, New Zealand’s economy expanded at the fastest pace in seven years in 2014 as low interest rates and higher tourist spending stoked consumption.

We saw a sudden 8.8% drop in New Zealand’s GDT index in March, after 2 consecutive price gains since the start of the year, which could be the force behind the downfall of Kiwi versus most of his dancing partners.

The Reserve Bank of New Zealand (RBNZ ) published forecasts for the 90-day bank bill yield suggesting borrowing costs won’t change until at least 2017. The next adjustment, either up or down, will depend on data including wage and price setting behavior and inflation expectations.

However, there is major drought risks that could affect  the world’s biggest dairy exporter, Fonterra Cooperative Group Ltd. Falling milk production as a drought hit some regions may damp growth early in 2015.

The New Zealand Dollar managed to find support against Ms. USA beginning of the year after the RBNZ signaled it was in no hurry to cut interest rates at its monetary policy meeting. Governor Graeme Wheeler highlighted a range of factors underpinning strong economic growth and dismissed soft inflation readings in the near term as largely reflective of the transitory impact of oil prices.

Which brings us back to oil.

Oil prices were the driving forces behind markets, as prices continue to move higher amidst concerns over what’s going on in the Middle East. Further action by Saudi Arabia led oil prices higher throughout the session, as traders fear that supply stability could be hit as Yemen sits on one side of the Bab el-Mandeb strait, a supply pinch point where the Gulf of Aden meets the Red Sea, on the way to the Suez canal.

The price of a barrel of oil rose around 4% in yesterday’s trading, with Brent Crude now around $58 per barrel. Prices fell back in the overnight session, but are likely to pick back up this morning on news that a barrage of explosions was heard in the Yemeni capital this morning.

Despite this, Goldman Sachs said that the possible disruption in supply would only have a nominal impact, as tankers could be diverted around Africa if needs be. They also said that a possible deal with Iran over curbing nuclear ambition in return for lifting sanctions would only have a negligible impact on near term oil supply.

Mr. Kiwi has been on a downfall since the beginning of the week versus most of his major counterparts including the US dollar and Canadian dollar, lets do a technical analysis on their moves.

NZD/USD Technical Analysis & Trading Strategy

The NZD/USD pair has been on a general downtrend, led by the strengthening US dollar and reached our bearish target of 0.72380 in February. It then bounced back up to our pivot point and 23% Fibonacci level, scratching the upper Bollinger Band, followed by a Spinning Top and Bearish Engulfing Candlestick Pattern which brought the sentiment back to bearish. We just had a confirmation below the pivot level this morning which could have open doors for more drops towards 0.74600 and extending it to our previous bearish target at 0.73500.

That’s right, Forex markets move in cycles!

I would set my stop loss at the 38% Fibonacci level at 0.78300, which is in fact our alternative scenario’s bullish target as well.

Watch your trade closely Monday before/ after the ANZ announcement, and adjust your stop/ limit according to market sentiment. We will keep you posted right here as well!

NZD/CAD Technical Analysis & Trading Strategy

Unlike his dance moves against Ms. USA, Mr. Kiwi has been on a general uptrend against the Canadian dollar.

But the recent bearish sentiment remains true here as well. Call it a market correction, we have seen a confirmation below the pivot level in the NZD/CAD as well, and foreseeing further drops towards 0.94530 and 0.93580 in extension. Our stop loss is set at the 0.96 level.

Do you think the ANZ Business Confidence will change the sentiment in Kiwi? Come on over to Facebook and let me know!