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2015

New Zealand Dollar Research Report

Published: Tuesday 30 June 2015

The RBNZ surprised the markets on June 11th with an interest rate cut, analysts had expected the central bank to remain in neutral stance for the remainder of the year and was in contrast to the 4 rate hikes in 2014. Consequently the Kiwi was sold aggressively and it was the catalyst to see GBP rally up to 2.20 in the aftermath. It’s been one of those month’s for the NZD - GDP data released showed growth fell to a rate of just 2.6% in Q1 2015 down from 3.5% in Q4 2014, well below forecasts - combined with a drop in dairy prices and a widening current account deficit, the argument and expectation for another rate cut from the RBNZ grows. The central bank meet on 22nd July and they hinted at an additional cut (or two) in the last policy statement so the Kiwi is likely to remain under pressure.

Further afield the ongoing Greek debt crisis and 50% drop in Chinese stock markets will do little to bolster investor confidence and as such safe haven flows out of commodity currencies like the Kiwi into USD and CHF will continue if macro-economic events deteriorate.

Technically GBPNZD has rallied just over 9% in June, following an 8% move up in May - a massive move when you look back at the trading range over the last 4 years - the last time it rallied as aggressively was late 2008. On the 10 year chart GBPNZD has now retraced more than a third of its drop from the 2006 high at 3.0677 to the 2013 low at 1.7742 and with the potential for more rate cuts from the RBNZ, the next major target is the 50% retracement at 2.42. When I wrote back in March that the next test of 2.1040 may result in a break higher I didn’t think the target would be reached as quickly as it appears it may be.

Buyers

On the daily chart the price actions now consolidating around 2.30 - I would expect any correction lower to find support at 2.25 initially and after such an aggressive rally some form of pull back is just around the corner. I would certainly consider buying something here and if you are targeting higher levels use a stop loss order below 2.25 as a safety net. All eyes will be on the RBNZ on 22nd July, how much of the potential interest rate is already priced in. Also Sundays Greek referendum will influence stock markets/risk appetite so NZD likely to be volatile over the weekend, in this environment automated orders are great tools to use. Speak to your Halo consultant to place them appropriately.

Sellers

The daily/weekly charts show the Kiwi is oversold so a pullback in your favour may be in the offing. Target 2.25 initially with the very best case a drop to 2.1040 to test the level of the breakout in May.