The Kiwi dollar has been a bit of a battlefield for traders that want to express the fear out there. The pair is less liquid than a lot of the majors, and as a result can move quickly on headlines, and we have more than enough headlines lately. (Some people consider the NZD/USD pair a major pair, some don’t. There is a bit of a debate about that, but the pair is a major one in my opinion, albeit the “smallest one”.)
The pair can move on headlines from anywhere in the world, but without a doubt the European problem is the biggest mover of this pair at the moment. In fact, in a lot of ways the New Zealand economy has almost no bearing on this pair these days as the problems in the European Union drive almost everything.
The pair is a great measure of fear, or sometimes a lack of it as the traders in the market have been “programmed” to buy and sell the Kiwi dollar based upon whether or not global commodities are going to be flowing across borders. The Kiwi of course gains when things are “good”. When they aren’t, the idea is that commodities will suffer, and there will be less demand for the New Zealand dollar.
0.78 hold ‘em back
The gap up from the weekend in response to the Spanish bailouts for the banking system was short lived to say the least. In fact, I was rather surprised to wake up and see most of the gap was already filled at the US open. The pair then proceeded to fall a bit below that level and close towards the bottom of the daily range as the Dollar remains king overall. As long as there is fear out there involving the European Union, this pair will continue to get hammered form time to time.
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The selling of rallies is the way I choose to trade this pair. The 0.78 level should continue to offer resistance, and there is certainly even more at the 0.80 handle. It is because of this that I think my bias will remain to the downside for a while. I believe rallies will simply be an invitation to sell at higher prices. The 0.75 level below is the markets target in the short term I believe.