Shorting the New Zealand Dollar?


“If at first you don’t succeed, try, try again. Then quit. There’s no point in being a damn fool about it.

W. C. Fields

Commentary & Analysis

Shorting the New Zealand dollar?

I shorted the New Zealand dollar today; it’s my second try this year. J Below are my three rationales:

1)      I liked the chart setup: A nice symmetrical corrective rally into minor wave 2 into the 0.8432 high…

2. The current account deficit may matter and could get worse:  New Zealand isn’t an emerging market country, but it does act like one at times from a funds flow perspective.  If the US Fed follows through on tapering there is concern money will flood out of emerging markets.  Secondly, if China’s demand is indeed fading, then it should hit New Zealand’s current account directly.

3. The yield spread favoring New Zealand over the United States should fall: This guess of course is dependent on what I noted above—if the US Fed follows-through with tapering (there are no guarantees given the dismal jobs report last month from the US and the decline again in the Participation Rate).

New Zealand 10-year Yields: Turning over?

2-year Yield Spread New Zealand – United States vs. NZD/USD:

  • Happy Pip

    Hmm, interesting intermarket analysis right here!

  • technical reasoning seems appropriate, and looking at the facts presented, they seem to fit well together.

    Still, price is a reflection of peoples’ assumption, and the biggest influence factor in the discussing assumption is RBNZ.
    What we know with relative certainty is, the RBNZ pledge to make 225 bps rise in OCR over the coming 9 quarters.

    What we do Not know is, how they going to do it.

    #1 postponing January rate hike would mean that in order to achieve their target, they will have to make a bigger steps later on, which would results in higher waves. The stretch between disappointment and overjoy can, and often does, prompt extremes in price fluctuation.
    #2 carrying out with equal rise, in time and proportion would be satisfactory at first, and very soon muted. Since there will be no surprises, positive nor negative, the exchange rate would rise steady within the time frame and expectations.

    All central banks want limited volatility, that is how they embody success.
    So, if you have choosen #2 as the way to go, really wouldn’t go with multi-week short position (as of daily charts).

    In 2014, NZD is gonna be the bully on this street and better run with it rather against it.

  • JT

    YES!!! I believe when the RBNZ does not raise rates as aggressively as the markt has priced in the NDZ will be punished against the USD