NZD/USD Daily Outlook Feb. 20, 2012

By: Christopher Lewis

NZD/USD moved sideways on Friday as the pair continues to hover around the 0.8250 area. The pair is very sensitive to risk as well as the commodity trade as New Zealand is a net exporter of agricultural commodities hand over fist. The pair will often move with the general sentiment of the commodity markets as a whole, so sometimes it is difficult to try and nail down a specific futures market that you want to trade in tandem with the Kiwi dollar.

The Kiwis currently have one of the highest interest rates in the currency markets, so when you have a low interest environment, some traders will simply go long the high yielders in order to gain that swap. (Assuming the markets aren’t falling apart that is.) Of course, this moves in reverse as the markets get weaker and weaker as the US Treasury markets suddenly become the market everyone wants to be involved in.

With the recent expanded low interest rate policy in the United States, the rush to yield continues. This can be seen in other markets as well, as the dividend yielding stocks are doing well on the whole also. The fact that the Treasury markets are so overcrowded and yielding such low returns will continue to send investors into other markets to look for a return.

Ledge or Launching Pad?

The current area that we find ourselves in has seen the market move sideways in a 200 pip range, but essentially fail to go anywhere. With the recent impulsive move to the upside, this isn’t a big surprise, but the real question now will be is this a ledge or simply a resting area before we shoot straight up again?

The Kiwi will often grind for a while, and then go parabolic. This is partly because the pair is much less liquid than the Aussie and others that people like when taking risk on. The area currently is defined as the 0.8250 level on the bottom, and the 0.8450 level on top. With this in mind, the pair is either a scalper’s pair, or we need to wait until a break out in one direction or another. I will have to say though, that the upside is preferred at this point. In fact, if this pair falls – I won’t be selling until sub-0.80 or so. The 0.82 level could be supportive as well, and I will be looking for supportive candles to buy if we break down a bit. New highs has me long as well.