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October 2015

China and America dominate NZ Dollar movement

Published: Tuesday 06 October 2015

Having suffered at the hands of a slowing Chinese economy and an affected Australian economy, the New Zealand economy is now levelling off. This shows up very clearly in the decline of the NZ Dollar against the Pound from April through to August (NZ$1.92 to NZ$2.52) and then the levelling off since then which has taken this pair back to NZ$2.33.
 
Traders in the NZ Dollar are watching developments in America now after months of fretting about the Chinese decline. They were right to be concerned over China nonetheless. New Zealand's largest export customer is Australia and Australia's greatest influence is its major export buyer, China. And China is now New Zealand's 2nd largest overseas market. No surprise than that events across the Tasman Sea and within China inevitably impact the NZ economy.
 
But, as you can see, the NZ Dollar has recovered some of its strength as in line with slightly faltering US data and as the Fonterra dairy cooperative has restricted the supply of dairy products to protect the yield that its members enjoy. You will no doubt be aware of just how important dairy exports are to NZ, so Fonterra's actions to ensure profitable trading have been a boon to the NZ economy.
 
On the UK side of things, the Pound has finally seen a bout of consolidation after a period of significant strength. The UK economy remains strong but the pace of recovery may have slowed a tad and that has given traders an opportunity to take some profit on their Sterling gains.
 
Where next? Well the GBP-NZD rate has slipped from that NZ$2.52 spike and is now trickling lower. There is a good chance we will see it test the NZ$2.30 level and that would still be within the upward trend that has dominated the last 6 months. Barring any unforeseen events, that may be the bottom of the dip and Sterling could indeed re-commence its advance against the Kiwi Dollar but there's many a slip twixt cup and lip as Grandma's used to say.  There is a chance we will see this pair fall all the way back to NZ$2.22. That would mark a 50% retracement of the recent rally and would indicate a big clear out of speculative positions; making way for the next leg higher. Nothing is certain but it would be worth using these targets for your plans whether you are a buyer or seller.