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The Kiwi Immediately Lose Ground as Fitch Cut New Zealand's Long-term Rating

The Kiwi Immediately Lose Ground as Fitch Cut New Zealand's Long-term Rating

2011-09-29 18:03:00
Trang Nguyen,
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THE TAKEAWAY: Fitch Downgrades New Zealand Long-term Foreign Currency IDR to AA> Level of Net External Debt Is Too High >The Kiwi immediately slides versus its major trading partners.

Fitch’s announcement at around 12 P.M Eastern Time today surprised the currency market as the major rating agency downgraded New Zealand’s Long-Term Foreign-Currency Issuer Default Rating to “AA” from “AA+” and Long-Term Local-Currency IDR to “AA+” from “AAA”, with stable outlook. The agency cites the country’s high level of net external debt as a main reason of the downgrade. According to Fitch, “New Zealand’s net external debt of 83 percent of GDP on a USD basis by the end of 2010 was well above the 10 percent median for ‘AA’ range credits”.

NZD/USD 1-minute Chart: September 29, 2011

092911_Fitch_downgard_NewZealand_body_Picture_1.png, The Kiwi Immediately Lose Ground as Fitch Cut New Zealand's Long-term Rating

Charts created using Strategy Trader– Prepared by Trang Nguyen

Right after the long-term foreign currency downgrade, the kiwi rapidly loses its grounds against most of its major trading partners. Taking a look at the NZDUSD 1-minute chart above, the NZD/USD currency pair suddenly plunged approximately 80 pips from 0.7780 to 0.7700. The bearish pattern, “dark cloud cover”, signified that buyers were losing their dominance. The currency pair immediately shifted to downward momentum. Also, the Relative Strength Indicator, an oscillator indicating overbought or oversold reactions in the monetary market, immediately fell below 30 that signaled massive high-yield currency sell-off. It’s evident that money managers quickly cut their kiwi holdings and instead raised the amount of safe-haven U.S. dollar in their portfolios.

GBP/NZD 1-DayChart: September 29, 2011

092911_Fitch_downgard_NewZealand_body_Picture_4.png, The Kiwi Immediately Lose Ground as Fitch Cut New Zealand's Long-term Rating

Charts created using Strategy Trader– Prepared by Trang Nguyen

As can be seen from the 1-day GBPNZD chart above, the GBP/NZD pair crosses above its 200-day Moving Average Exponential. That means the currency pair is now trading at more than average price of exchange rate over 200-day time frame. At the time this report was written, the currency pair traded at 2.0278 per pound. Following the downgrade announcement, the kiwi weakened considerably versus the British sterling and its major peers as well.

Written by Trang Nguyen, DailyFX Research Team

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

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