The New Zealand dollar initially dropped against the Swiss franc on Monday, continuing the overall “carry trade” potential here. This market is slow but pays a swap at the end of every day.
NZD/CHF
The New Zealand dollar initially dropped against the Swiss franc during early trading on Monday but has since seen a turnaround to show signs of life. All things being equal, this is a market that tends to move on risk appetite, as the New Zealand dollar is further out on the risk appetite spectrum than the Swiss franc. The interest rate differential will favor the New Zealand dollar, as you would expect, as the Swiss National Bank has been very stubborn with its 0-interest rate policy.
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The market recently broke above the 0.47 level and has been bouncing around in the tight range that we've seen since then. The 50-day EMA has broken above the 50-day EMA, kicking off the so-called golden cross. This is often used by longer-term investors for trend following purposes.
Carry Trade Dynamics and Long-Term Outlook
Ultimately, this is a pair that carry trade participants like because it is very choppy and it is very slow, but it does pay at the end of every day. While this is not a market that I look for big moves to come out of, and then just simply willing to collect that swap at the end of every session. It's slow, and it's boring, but it is an investment. It's not a quick trade; it is something that can build gains over time.
The market breaking down below the 50-day EMA would be a very negative sign, but right now we've seen this recent explosion higher, some consolidation, and as most technical analysts will tell you, a lot of times consolidation leads to continuation, and that is my thesis here in this pair. While it isn’t exciting, it is steady and pays over time.
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