Today’s Forex Guide

Cha-ching on falling Kiwi. What’s next?


Jul.16.2015

8:45 AM (EST) Update

Invest Diva traders just exited a bearish position on the NZD/USD currency pair, making some 230 pips in a single trade.  Cha-ching! But what was behind the fall of Mr. Kiwi against Ms. USA and what could be next for this pair on the forex dance floor?
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Technical Analysis

The New Zealand dollar - US dollar pair (NZD/USD) has been rocking it reaching our bearish targets one after another, and YET another one again yesterday as we reached our most recent target of 0.6570.

The pair has already broken below a five year low of 0.68, and currently testing the next important support level of 0.6575 which also dates back to 2010. A break below this level indicates the possibility of a free fall to the lows of 2009 at 0.62. To back up this bearish out look, the pair remains  below the Ichimoku cloud, but with the RSI  in the oversold zone, we could see a correction before further drops.

Sentiment Analysis

77% of traders on one of the world's largest brokers are long the NZD/USD pair (shockingly) and since we use such data as a contrarian indicator, this gives us further bearish bias for the happy couple.

Economic Points

New Zealand Side

When a country is heavily reliant on dairy product exports, (HINT: New Zealand) the GDT index (GlobalDairy Trade) better be ticking up to strengthen that country's economy. Unfortunately this hasn't been the case for quite a while now and yesterday's GDT data came in at -10.7%, way below the already low previous release of -5.8%.  The GDT index shows the change in the average price of dairy products sold at auction. It's a leading indicator of the nation's trade balance with other countries because rising commodity prices boost export income.

Consumer Price Index (CPI) also came in lower than expected yesterday signaling lower inflation which could lead to another interest rate cut  by RBNZ after last month's cut.  In a statement, Governor of the Reserve Bank of New Zealand Mr. Wheeler admitted that subdued inflation and lackluster growth were the main factors that led them to decide that a rate cut was necessary.  New Zealand's Q1 2015 economic data was so bad that it made some Kangaroos from the Land Down Under wanna cry.

Other than these, export levels have been weak, and consumers are lacking the confidence to shop more as they are probably anticipating possible layoffs due to New Zealand's economic slow down and the downturn in manufacturing activity.

All in all, New Zealand's economy seems to need further stimulus and a future rate cut could be in the pages of Mr. Kiwi's book.

US Side

Unlike Mr. Kiwi, Mr. US is flying high on the forex dance floor, making this pair an ideal trading opportunity. Federal Reserve head Janet Yellen has been pretty upbeat about raising interest rate within 2015 and rumor has it, the hike could come in September rather in December.

It kind of makes sense because markets are pretty thin end of the year and a rate hike could bring more risk ass opposed to September when kids have gone to school and parents can finally get back to their investments with a peace of mind.

We have seen lower unemployment claims out of the US this morning, also pushing the USD higher, and therefore, backing up our NZD/USD bearish outlook.

Trading Idea

Bearish below 0.66 targeting 0.62

Suggested stops and limits:

Support Levels Turning Point Resistance Levels
0.65 0.68 0.74
0.62 0.7090 0.77

*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.

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