The New Zealand Dollar has had a difficult end to the week. Being heavily sold against most of its major counterparts. However, the longer term charts and underlying macro situation mean the picture is not as clear-cut as it seems.
New Zealand has been somewhat of a darling recently. A purring economy, an excellent rugby team and some of the highest interest rates in the developed world keeping the New Zealand Dollar in demand.
The later is the most important in our zero percent interest rate world, and this has benefited both Aud and NZD.
Neither the RBA nor the RBNZ have been particularly happy about this and were no doubt hoping that the Federal Reserve would help them out (as did just about every other central bank), by finally delivering a rate hike.
To digress a moment, in New Zealand, we have a saying. “Like a possum in the headlights.” Meaning confused, disorientated or indecisive. The FOMC sadly did not hike, continuing to be the equivalent of a monetary possum in the headlights. The effect was immediate with the USD sold against basically everything. No doubt provoking much hand-wringing at RBNZ Head Quarters.
The NZD duly staged impressive rallies, not just against the USD, but a slew of other currencies we shall deal with below. The RBNZ has attempted to limit the damage on their Trade Weighted Index forecasts by being very dovish in their MPC announcements yesterday. Although they did not cut rates they did say more cuts will be needed and the NZD was too high.
As the dust settled in New York last night and Asia today, the USD has gradually eked back its losses helped by better than expected US Initial Jobless Claims. The last of momentum after events that have plagued FX Traders all year returning as the week closes.
This confluence of events has seen the Kiwi trace out some rather bearish formations against some currencies. Including some outside reversals. This may, however, not tell the whole story. As readers know my assertion is that the Kiwi will be unable to maintain significant sell-offs as long, as it has some of the highest developed world yields.
The NZD has well and truly broken its trendline support on the daily chart at 7270. Support lies at 7235 and then 7200. A break under here opens up a move to the 100 day moving average (DMA) at 7105.
Resistance is at 7315 and then 7370.