There goes the Kiwi

A couple of releases later, and Kiwi is getting offered…..

Steadily and heavily.

Other currencies are selling as well, but this one I have had my eye on for potential for some time and it is finally playing out.  This is the daily on NZDUSD:

Source: Trading Economics 

Have we finally topped out on this currency?
To begin, everything in relational.  As this chart shows, NZD has been moving higher relative to USD.  But, let’s look at the reasons why.  For a month, or so, there has been a belief that two events are happening;  U.S. interest rates are not moving up higher, sooner, and NZD interest rates are no longer going lower and will eventually move higher.  Neither of these two thesis’ exist, really, anymore.  Over the past week, U.S. data has exceeded expectations with jobs, retail sales and a few other releases showing improved results.  The Fed may very well be on hold for the moment, but the U.S. economy is not.  Interest rates are going to move higher in the U.S.  In NZ, the story is a bit different as Sunday night’s release showed, that it is likely that NZ interest rates may be heading lower.  The market is pricing in a 71% chance that RBNZ is going to lower interest rates at its next meeting, something that was unexpected just one week ago.

So, if everything is relational, then USDNZD would naturally move lower as the differential narrowed markedly and will continue to do so.  Anyone that got in to that carry leg will now be getting out as 10-year yields are moving adversely  against the position, and the currency continues to decline as traders head for the doors.

Still, relationally, NZD has the highest interest rates in the world for developed nations.  But, it is not so much where interest rates are now as it is where they will be in the next moment.  Given that, with the newer landscape, I would be inclined to sell NZD across the board as there is a repositioning of trades.

NZDUSD will head lower and NZD across the board will sell.  It might be that if we see some corrective selling today with the equity markets, then NZDJPY would sell off.  That would be an interesting trade.

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