Kiwi dollar selling opportunities – Forex Trading Tips

There is no trade call at this time. However we do note the pullbacks in both GBPNZD and NZDUSD which should be considered as potential Kiwi dollar selling opportunities.

Current Sentiment:

Yesterday was yet another session filled with news from Greece. Creditors refused Greece’s most recent proposal and returned a revised proposal which Greek leaders have since declined. The key players seem to be no closer to reaching a deal and at this stage events could still go in either direction.

The Asian session was light on both news and price action. Antipodean currencies edged higher as the CRB Commodity Index gained yesterday.

There is no trade call at this time. However we do note the pullbacks in both GBPNZD and NZDUSD which should be considered as potential areas to sell Kiwi dollar.

Fundamentals:

The USD remains the strongest currency in the longer term. The market is expecting the Fed to raise rates in H2. Recent NFP readings have been positive and core inflation appears to be trending higher. Although we expect bullish sentiment on the dollar to remain in the near term, it is near its long-term highs against many counterparts and therefore may be susceptible to pullbacks – such pullbacks will likely provide buying opportunities. The recent FOMC statement showed the Fed are on track to raise rates in the context of an improving economy, however USD saw heavy selling as the economic projections for the FFR in 2016 and 2017 were scaled back. The dollar has since regained strength.

The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue, however recent inflation and unemployment numbers have signalled that a recovery is on track, which gave the currency some temporary positive sentiment throughout April. There is currently a high correlation between bund yields and the euro; bunds should be monitored if trading euro. If Greece fails to make any of their imminent repayments, the euro will likely be pressured. Conversely, a deal with a solid resolution will precipitate a relief rally. BofAML forecasts EUR/USD to reach parity by year end and adds that the Greek scenario will get worse before getting better.

GBP is looking at a rate hike around the middle of 2016 and is therefore a fundamentally bullish currency in the long term. The recent jobs numbers showed much better than expected average earnings figures and this is very bullish for the pound as it brings forward the timing for rate liftoff. We are also aware of two of the nine MPC members being very close to voting for a rate increase. GBP has had a strong rally over the past several weeks and is currently near long term highs against most counterparts. Barclays forecast the BOE to hike rates in Q1.

AUD: Low commodity prices and a slowdown in China has put bearish pressure on the AUD. Overall the bias for AUD is on the bearish side of neutral, until we see more data. Language from Governor Stephens recently has been dovish. A resumption of the downtrend in base metals will also see AUD pressured.

NZD has a new official cash rate of 3.25% after the RBNZ cut rates on June 11. The Bank has left the door open for further easing and as such the Kiwi dollar is a bearish currency in the medium term. The recent GDP reading showed a huge miss and this adds weight to the chance of another rate cut, with some banks calling for two more cuts in 2015. Kiwi is at multi-year lows. 12 out of 17 analysts expect the RBNZ to cut rates to 3% on July 23rd, while Credit Suisse OIS market has priced in a 74% chance of a 25bps rate cut.

CAD remains on the weaker side of neutral. In the absence of unexpected data, CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD.

JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is severe uncertainty in the markets. Language from the BOJ shows they believe a recovery is beginning and QQE is having its intended effect. Recent positive GDP readings have dampened speculation of any additional easing.

CHF is fundamentally a weaker currency given the SNB’s negative interest rates. It is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is approximately 75%.

Technicals:

We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).

Other Market Moving News:

Today is another relatively light data session, where Greece will likely remain the focus. SNB’s Jordan speaks at 9am BST however we do not expect any comments on monetary policy. The EU Economic Summit runs all day.

In NY we see US PCE Price Index and Personal Spending.

In early Asia we will see NZD Trade Balance.

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