The NZD/USD pair broke down during the session on Thursday after initially rallying. We find interesting about this move is that we actually sliced through the 0.75 handle, an area that I figured would be a bit more supportive than we have seen. That is an area that of course is a large, round, psychologically significant number, so normally there’s a bit of a fight to be had. Now that we have cleared this area, I believe that the New Zealand dollar is free to fall much lower.
Wasn’t that long ago that the Royal Bank of New Zealand suggested that fair value in this particular currency pair was closer to the 0.68 handle. It’s possible they may actually get that given enough time, but I think the next target is probably going to be the 0.70 level, as it just makes more sense from a large round number standpoint. Remember that the commodity markets are getting absolutely thrashed at the moment, and the New Zealand dollar is sensitive to that general marketplace.
Selling rallies
I’m approaching the New Zealand dollar very much like I approached the commodity markets at the moment, selling rallies. I think that every time one of these markets rallies, it invite selling because of the fact that the US dollar is so strong, and there is going to be a significant lack of demand for commodities overall. After all, the US Dollar Index is breaking out in looks to be heading to the 95 level. That is an astronomical level considering where we have been over the last several years. In other words, it appears that the New Zealand dollar will continue to soften, but quite frankly the central bankers in Wellington certainly won’t have an objection to this.
I believe that as long as we rally, there will be people out there to sell this market. I do not think it’s possible to buy this pair until we get back above the 0.7650 level, something that doesn’t look that likely anymore. I anticipate the trend continuing to the downside.
