Potential signal
- I am a seller of this pair below the 0.5920 level with a target of 0.5750 below.
- Stop loss would be 0.60 above.
Initially on Thursday we had seen some bullish pressure in the New Zealand dollar but quite frankly it is just more nonsensical volatility in the markets and the panic du jour of the day has sent people shorting anything close to risk appetite.
That is just the nature of the markets right now and typically that favors the US dollar mainly because people will run to treasuries or something like that. Furthermore, this is a backdrop that you have to look at through the prism of the fact that the central bank in New Zealand is likely to cut rates.
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Central Bank Divergence Favors the United States
They are going to stay dovish for a long period of time while the Federal Reserve expected to cut rates is continuing to be much slower than most people had hoped. In other words, the central bank divergence does favor the United States at least at the moment and if that is going to be the case I prefer to short this pair in massive contrast with the Australian dollar which is backed by a central bank that is going to hike rates.
Therefore, you are seeing a little bit of a divergence which is interesting because typically the Aussie dollar and the New Zealand dollar move in the same direction against the US dollar. I am not saying that we are going to collapse here but if we were to break down below the 50-day EMA, I think that would be a pretty good sign that we are going to see a drop perhaps down to the 0.5750 level.
If we turn around and recapture the 0.60 level it could open up the possibility of a move to the 0.61 handle above. Ultimately, I think volatility is an assured thing here. I do favor the downside.
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