NZD/USD Short-Term...


Hi Vidigix,

NZD/USD is not a pair I trade but being a Kiwi myself, maybe I could shed some light on some of the fundamental things going on over here.

All I can see from the charts is a continuation from the steady uptrend that started when the pair was trading at about 39 cents. It keeps testing moving averages and bouncing off them.

It looks like it will continue up to at least the 76 - 77 cent resistance level and possibly up to 80 cents.

Fundamentally house prices have slowed somewhat and the median house price for the largest city (Auckland) has dropped significantly.

Some are blaming it on the fact that many New Zealanders are in Europe for the rugby world cup but I'm not too sure about that.

We've had a record housing boom cycle starting about 7 - 8 years ago. Predictions of a correction have been made has far back as 2004 - 05 but it still keeps roaring like a runaway train.

Farmers are in for a a great year with record payouts for milk solids per kilo. The returns they get will be compounded by a high kiwi dollar.

As our main source of GDP is through agriculture you could probably take that to mean the economy is in healthy shape.

In saying that though, the last time the kiwi was at these levels, exporters were being savaged so the reserve bank stepped in and intervened to bring levels down.

That, in conjunction with carry trade unwinding brought levels back to a more comfortable level however it seems investors saw it as just a correction to jump in on more carry trades once the sub prime mess had settled down.

And therein lies the problem.

Investors love our currency as a carry trade vehicle as we have one of the highest (if not the highest) interest rates in the world.

They borrow low interest currency such as the JPY and buy NZD with it. That way they get the double bonus of not only profiting from the rising NZD but also the interest paid.

These investors are primarily behind what is moving the dollar coupled with a weak USD.

Once it hits previous resistance levels you can be gauranteed the reserve bank will step in to try and tame it but we all know what happened to the Bank of England when it took on George Soros in a similar scenario - it lost.

I wouldn't recommend trading the pair at all due to the fact that there looks to be a big tussle in the works between RBNZ and traders.

The economy is due for a slight corrrection (whether through engineering it that way or as a natural cycle) but whether this will correspond with a lower dollar is anyones guess.

So to cut a long story short I would say the pair has a bit of upward movement in it left but keep in mind that the ideal level for the RBNZ is around the 66 - 68 level mark and if it pushes past previous resistance levels they will do everything in their power to get it back to manageable levels otherwise you will see businesses involved in exporting (a lot) dropping like flies.

There is a little known law providing for situations such as that whereby RBNZ is allowed to step in a physically devalue the dollar providing certain criteria are met and with each day passing that the NZD pushes higher, more and more of those criteria are being met.

Hope this helps - Happy Trading! :)
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