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The New Zealand Dollar is certainly not a currency to place bullish long-term bets on at this point, and certainly not against its US cousin,
How could it be? Local interest rates remain stuck at record lows and are not thought likely to rise until well into next year- at the very earliest. Business confidence is beaten down to the point where weakness begins to look systemic. Global risk appetite’s skittish relationship with the next trade-war headline also argues against holding growth-linked units such as the kiwi.
However, NZD/USD might just have suffered enough for the moment and may be due a bounce, if likely a modest one. After all the most recent significant lows remain some way off, and the currency pair is now below all three of its key 20-, 50 and 100-day moving averages.
Momentum indicators suggest that it is heading toward oversold territory too.
None of this is to suggest that NZD/USD is in any danger of an immediate turnaround, nor that the long downtrend which has dogged it all year is going to ameliorate. This is still in all likelihood a big strategic short.
However, the currency may yet track back higher in the short term, if given the chance by those trade headlines. It might get back up to those previous highs of 0.6722, and maybe even a little above them over the coming few days.
Consolidation there is less likely but, if it comes, it could put July’s top in the 0,6821 region back in focus. This would not threaten the integrity of the overall daily downtrend, and stop loss sell orders at this week’s lows should provide adequate protections.
It might also make sense to look for some tactical Australian Dollar gains on similar grounds, with the short-term Aussie correction case arguably boosted by recent strong growth numbers. Relative Australian economic strength should continue to support AUD/NZD too.
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--- Written by David Cottle, DailyFX Research
Follow David on Twitter @DavidCottleFX or use the Comments section below to get in touch!
