NZD Slips Could Be Worth Buying Against Macro Risk Backdrop
Currency Pair: Bullish NZD/USD
Expertise: Fundamental and Technical
Average Time Frame: One Month
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After a strong run higher into last week the New Zealand Dollar has wilted somewhat on its daily chart but there is scope for hope that the year’s long downtrend will not be resumed.
Most of the recent price action would appear to have a lot to do with the ‘USD’ side of NZD/USD and rather less to do with the local currency. Suspicions that US interest rates may yet go lower knocked the US Dollar and raised risk appetite to the Kiwi’s benefit.
However, in the last couple of days softer trade rhetoric from Washington toward Beijing has seen the US Dollar creep higher. Of course, trade headlines are a real unpredictable lottery for currency investors and others but, if the world is really headed towards more monetary accommodation the New Zealand Dollar should find itself well underpinned.
Such backdrops always result in a ‘hunt for yield’ and the currency still offers it. Its key Official Cash Rate may be at a record low of 1.50%- and expected to go lower- but that will still probably leave the New Zealand Dollar offering better yields than most developed market peers and a triple-A credit rating to boot.
Technically speaking NZD/USD is headed back towards the downtrend line which capped trade from late March until the start of June. It may even get there and slide back into a support zone defined on the top by the 6357 region, which capped trade between mid-May and early June, and at base by this year’s low.
However, for as long as markets suspect that the Fed will be more accommodative in the weeks and months ahead, the New Zealand Dollar is likely to retain a stronger underpinning than it has had for much of this year. The recent peak of 0.6680 should be reachable again at the very least, with consolidation around that region and a push higher very possible if stronger risk appetite remains clear.
The Australian Dollar will also benefit in much the same way, probably, but, with more near-term rate hikes priced into its forward curve than New Zealand’s, the Kiwi might get more support.
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--- Written by David Cottle, DailyFX Research
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.