The New Zealand Dollar has been in a downtrend since the middle of 2014 as it followed the Australian Dollar and other commodity currencies down, parallel with oil’s decline. The Kiwi also reacted to the soft economic numbers from China and the fall in the price of dairy products, which represent most of New Zealand’s export. In the long run, the booming tourism industry is likely to benefit from the weak currency, but currently, it is not enough to reverse the trend in the New Zealand Dollar.
With continued weakness in Asian economies and the implied softness in demand for both New Zealand’s and Australia’s products, it is likely that the prevailing trend will continue and NZDUSD will hit new bear market lows in the coming months. The slowdown in China, the biggest importer of commodities and other products from the South Pacific region means that exports are under pressure in the whole region. The competitive devaluation of the Chinese Yuan is also a negative factor concerning the local currencies. Traders should look for signs of bottoming in commodities before expecting any durable advance in the New Zealand Dollar and the Australian Dollar.
The technical setup is decisively negative with a broad declining trend channel dominating the daily chart. The pair breached the upper resistance line of the channel in late December but since it fell back quickly in the first two weeks of the year. The prior lows around 0.6225 are close and with the MACD momentum indicator in neutral territory currently, there is ample room for the pair to get to new lows in the current swing. The long-term target for the bear market in the Kiwi might be as low as 50 Cents, the lows hit during the financial crisis of 2008-2009. Above that strong support around the round number of 0.60 is expected.
Taking short positions against the New Zealand Dollar is advised here, not just against the dollar but also against the other safe-haven currency, the Japanese Yen. In the NZDUSD, a stop loss of 0.6685 looks optimal with an initial target price of 60 Cents. Purchasing both short and long-term put options on the pair is recommended currently, with an emphasis on longer-dated expiries currently short-term indicators are in neutral territory. March or April might be the best choice for the expiry date. As for the strike price, 0.6200 looks attractive here for April and 0.6400 for earlier expiries.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
