Never miss a story from David Cottle

Subscribe to receive daily updates on publications
Please enter valid First Name
Please fill out this field.
Please enter valid Last Name
Please fill out this field.
Please enter valid email
Please fill out this field.
Please select a country

I’d like to receive information from DailyFX and IG about trading opportunities and their products and services via email.

Please fill out this field.

Your Forecast Is Headed to Your Inbox

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk.

Your demo is preloaded with £10,000 virtual funds, which you can use to trade over 10,000 live global markets.

We'll email you login details shortly.

Learn More about Your Demo

You are subscribed to David Cottle

You can manage your subscriptions by following the link in the footer of each email you will receive

An error occurred submitting your form.
Please try again later.

New DailyFX Quarterly Forecasts for Q4 are available here

The New Zealand Dollar is down to lows not seen since early 2016 against its US big brother, and has shed nearly 10% this year so far. However, the kiwi’s punishment beating could be far from over yet.

Of course, it’s no great news that interest rate differentials support the US Dollar against it. They do against all major traded currencies and look set to continue to do so for some time. As the Federal Funds Target Rate just keeps rising, New Zealand’s roughly equivalent Official Cash Rate languishes at its 1.75% record low. It is not expected to move this year and, indeed, until well into next. However, the global growth cycle would be extremely mature by then, and any medium term changes are subject to innumerable variables. Upshot: a rise is not set in stone.

There are one or two other uncomfortable fundamental factors for kiwi bulls. Firstly it seems that the nation’s key diary trade remains oversupplied. Fonterra is the co-operative that manages a lot of the sector and it downgraded its milk-price forecast earlier this month. Then there is China. Amid mounting evidence that its economic expansion is slowing, New Zealand’s huge agricultural trade with the world’s second largest economy could come under further pressure too.

Given all of the above, it’s perhaps not surprising that the most recent Commitment Of Traders data from the US Commodity Futures Trading Commission showed record levels of short positions against the New Zealand Dollar. This very fact may offer some scope for a modest near-term rebound, but records are there to be broken and the fundamentals suggest that NZD/USD can go lower year, and it probably will.

As for how much lower, well, a look at the pair’s monthly chart finds it already threatening the base of a range that had previously limited downside since the summer of 2015. Should that give way in the months ahead then the long climb up from the post crisis lows of 2008 will be under threat.

New Zealand Dollar Struggles For  Fudamental Support

For as long as US monetary policy is tightening then that giving way looks all but certain. Much of this logic can also be applied to shorting the Australian Dollar, but the Aussie economy is more diverse than New Zealand’s and, while things don’t look great for its currency, shorting the Kiwi may well make more sense.

Resources for Traders

--- Written by David Cottle, DailyFX Research

Follow David on Twitter @DavidCottleFX or use the Comments section below to get in touch!