We have been short NZD/USD since last July and I expect the kiwi to remain weak going forward on speculation the Reserve Bank of New Zealand could have to cut interest rates faster than traders had previously expected to prevent the country from falling into a recession.
New Zealand’s Economy Could Face Bigger Problems In the Second Half of 2008
The New Zealand dollar has been falling sharply against the world’s most heavily traded currencies on speculation the Reserve Bank of New Zealand would have to cut interest rates faster than traders had previously expected. Indeed, the rapid deterioration of the New Zealand economy prompted many investors to exit the so called carry trades despite New Zealand’s high level of interest rate. Yet, the current wave of risk aversion in the world’s financial markets which forced many investors to cut holdings of higher yielding currencies has not been the only factor putting downward pressure on the value of the New Zealand dollar. In fact, several economic indicators suggest the New Zealand’s economy could face bigger problems in the second half of 2008 as record high interest rates slow consumer spending and business investment. Looking ahead, the combination of rising headline inflation, reflecting higher commodity prices, with weak economic growth, could prove to be very damaging for New Zealand’s economy. We target the NZD/USD at 0.68 in 1 month and at 0.65 before the end of the year. In addition, we expect the kiwi to lose some ground against the aussie and we project the AUD/NZD to be trading at 1.30 by September and at 1.35 by the end of 2008.
Written by Antonio Sousa, Chief Strategist Questions? Comments? E-mail: asousa@fxcm.com
Euro Dollar Could Reach 1.40 Once The ECB Starts Cutting Interest Rates
Recent economic data points towards a weakening of real GDP growth in the euro zone economy and a more accommodative monetary policy could be needed to prevent the region from falling into a recession. Our trading recommendation is to sell EUR/USD at the market for 300 pips in profit potential with a stop in a daily close above 1.48.
To read more about our forecast for the euro dollar please click here.