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If the Global Yield Hunt Remains, So Does Kiwi’s Upside

If the Global Yield Hunt Remains, So Does Kiwi’s Upside

2016-09-09 22:38:00
Tyler Yell, CMT, Currency Strategist
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If the Global Yield Hunt Remains, So Does Kiwi’s Upside

Fundamental Forecast for the New Zealand Dollar: Bullish

The week ended on a sour note for high-yielding currencies like Emerging Markets & the New Zealand Dollar. Mid-Week, the New Zealand Dollar got a nice bump thanks to stronger China Data. The Chinese data was enough to push NZDUSD to a 2016 high of 0.7488. However, the end of the week led to a

relatively strong sell-off in risk assets, and NZDUSD ended the week closer to 0.7300.

This week will provide some data to help traders get a sense of the stability of New Zealand’s economy, which has been a bastion for inflation and positive economic surprises. Given the possible volatility of the USDollar, the NZ Dollar may be played against other currencies such as AUDNZD on a bounce higher that would provide better levels to sell before an attempt is made to break below parity. Another cross that garnered attention last week was NZDCAD, which got rather close to all-time highs.

The data docket was nearly mute in NZ last week aside from a positive milk auction that attributed to the early week rise. The GDT index was up 7.7%, and the benchmark whole milk powder was up 3.7%. Next week will provide growth and inflation readings components that could allow NZD volatility to rise. Monday will provide MoM Food Prices, which is in focus given New Zealand’s commodity focused economy, and Thursday will provide BusinessNZ Manufacturing PMI and GDP readings.

The New Zealand Dollar could continue to hold up relatively well even in a possible risk-off environment. For this to take place, the data needs to hold up well and next week should allow us to see whether the NZD outpaces other high-yielders.

NZDUSD Sentiment Shows Retail Continues To Fight Yearly Highs

If the Global Yield Hunt Remains, So Does Kiwi’s Upside

Data source: Speculative Sentiment Index, Chart Source: Python. Prepared by DailyFX Team

The ratio of long to short positions in the NZDUSD stands at -1.97 as 34% of traders are long. Yesterday the ratio was -3.37; 23% of open positions were long. Long positions are 26.2% higher than yesterday and 9.2% above levels seen last week. Short positions are 26.2% lower than yesterday and 1.9% below levels seen last week. Open interest is 14.2% lower than yesterday and 0.4% below its monthly average.

We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the NZDUSD may continue higher. The trading crowd has grown less net-short from yesterday and last week. The combination of current sentiment and recent changes gives a further mixed trading bias.

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