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NZD USD – September Outlook

Autore: FX Empire Analyst - James Hyerczyk




After posting a new all-time high at .8842, the NZD USD sold off sharply as investors shed risky assets. Fortunately this sell-off was event driven and not related to a shift in the economy, and the Kiwi stopped at a major 50% level near .7978. From this retracement level, the currency pair rallied back to close at .8541. This close was about 2.84% lower than July’s close.

Despite the hard sell-off in August, the main trend remained up on the monthly chart. Studying this chart, one can see that the market clearly has support at the 50 percent to 61.8 percent retracement zone of the .7114 to .8842 range. This zone is at .7978 to .7774. The market will have to break through this retracement area to signal the start of a sizable correction.

In addition, uptrending Gann angle support from the March 2011 bottom at .7114 is providing solid support. This month the angle moves up to .8074. A move through this angle will serve as a warning that the market is weakening.

Fundamentally theNew Zealand economy appears to be sound. Last month the NZ economy posted a strong trade balance surplus of 129 million, trouncing the estimate of a 124 million deficit by a long-shot. This was the first July trade surplus since 1991. Although it showed a surplus, the figure was significantly lower than the June surplus. In addition, retail sales increased, beating expectations. With the economy on sound ground, expectations are for this trend to continue into September.

The interest rate differential also favors the New Zealand Dollar over the U.S. Dollar. With the Reserve Bank of New Zealand holding interest rates at 2.5% while the U.S. Fed remains soft, money should continue to flow into thisPacific Rim nation.

In late July, the RBNZ expressed concerns about the debt problems in Europe and the U.S., stating that it expected fragility in the global financial markets. Now that the U.S.debt ceiling issue has been resolved, traders are likely to focus on other side of the equation, the New Zealand economy.

At this time the central bank is concerned about the very high value of its currency putting a drag on the economy. If this condition persists, the RBNZ is likely to refrain from any interest rates hikes in the short-term. As the Kiwi gains strength, traders should be aware that the central bank may take action to prevent excessive volatility. Rumors of this taking place may dampen gains and could even make traders nervous enough to trigger a sell-off.

 


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