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Bearish NZD/USD on Deteriorating NZ Fundamentals, Dovish RBNZ

Bearish NZD/USD on Deteriorating NZ Fundamentals, Dovish RBNZ

Tyler Yell, CMT, Currency Strategist

The BIG Idea: NZD weakness has best been seen lately when pitted against the Australian Dollar. Inflation remains absent in New Zealand while they’ve come off the floor in Australia, which has had the RBNZ and RBA whistling a different tune of late.

Given the RBNZ starting to sound more like an Emerging Market central bank after their new mandate at the hands of PM Ardern included employment, the RBNZ is likely to let their currency drop so their economy does not.

Falling Financial Conditions Alongside Falling NZDUSD Is Just What RBNZ Ordered

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Data source: Goldman Sachs, Bloomberg

You can see that the GS financial conditions index (FCI) for New Zealand continues to fall alongside the NZ Dollar. This is a similar development as seen in healthier emerging markets that have seen stable or falling financial conditions despite a rising dollar as their currencies have weakened and their central banks have responded in kind.

Given the lack of inflation, and falling NZ Dollar after a dovish performance from Orr, NZ may be in the form of a goldilocks environment where the deteriorating exchange rate in light of little inflation and no credit crisis on the horizon can help the terms of trade and traders looking for more NZ Dollar weakness.

Technically Speaking

Point to Establish Short Exposure: Pull-back to 0.6950

Spot: 0.6922

Target: 0.6800 (November pivot)

Invalidation Level: 0.7050 (May Opening Range High)

If you are looking for other strong trading ideas, you may enjoy our FREE Trading Guides

The BIG Picture:

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Chart Source: Pro Real Time with IG UK Price Feed. Created by Tyler Yell, CMT

IG Client Sentiment Highlight: NZ Dollar Set to Fall on Rising Bullish Retail Bias

Chart created by Tyler Yell, CMT

The number of traders net-long blue line, has risen aggressively as NZD continues to fall. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZDUSD prices may continue to fall.

More For Your Trading:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q2 have a section for each major currency, and we also offer a excess of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our popular and free IG Client Sentiment Indicator.

DailyFX offers a surplus of helpful trading tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions.

Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

---Written by Tyler Yell, CMT

Tyler Yell is a Chartered Market Technician. Tyler provides Technical analysis that is powered by fundamental factors on key markets as well as t1rading educational resources. Read more of Tyler’s Technical reports via his bio page.

Communicate with Tyler and have your shout below by posting in the comments area. Feel free to include your market views as well.

Discuss this market with Tyler in the live webinar, FX Closing Bell, Weekdays Monday-Thursday at 3 pm ET.

Talk markets on twitter @ForexYell

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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