NZD Update: March 14, 2010

Feb 28th my last big comments on the NZD:

My arguments for Pre-RBNZ rate decision echoed many of Kathy Lien's argument's here. Its good to know someone like Kathy lien laid out the same logic as I did.

I was all for the growth story and playing down the need for a rate cute. Unfortunately I was wrong about the cut which sent the NZD/USD to its current lows. Despite the short term playing out its risks I'm surprised to see today long term 0.73 support holding.

Post RBNZ announcement the initial reaction led me to think the fundamental pull of the interest rates would continue to drag on this pair. So far this had been the case all last week. However the start of this week seems to be interesting as we are getting a moderate price bounce of support 0.73+

I will be very keen to watch this level, based of fundamentals such a bounce warrants a short term short to my previously stated target 0.693 ( stated 0.685 for my previous post but I meant 0.693). However, I still believe as growth efforts get underway buying the NZD for a long term up trend will be more profitable.

Downside Risk:

Much downside risk is coming from growth and trade expectations along with general Macro considerations (crude + inflation etc...). The US economy tripped up on jobless claims last weak and still has anemic housing. Along with high unemployment will force imports to be suppressed along with a weak exports boosting US exports. If the USD index remains below 80 we can see this continued effect. This will naturally weigh in on the NZD/USD. The situation in Europe isn't looking better, though that has limited effects for the pair.

Upside:

Asian demand for commodities will still remain which should help float the pair as growth comes back with rebuilding efforts. Low interest rates can spur back investment and growth opportunities.


Conclude:

Towards the end of the second quarter should prove better for this pair, as long as western economies can stabilize with risk coming back into the markets.


Strategy - If short term 0.73 won't hold (which I don't think it will) look for buying opportunity 0.70 +  this may take two to three months to play out. Short term risks weighing heavily in the coming weeks still.

If 0.73 holds I would trade break outs of 0.78 - the in-between is too risky  due to fundamentals.

Personally I think think this pair should be trading about 0.80 in new uncharted territory like the AUD. Will have to watch closely.


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Alexander Lê
Managing Partner
Analyze Capital LLC
analyzecapital@gmail.com