Saturday, 18 August 2007

NZD close to bottom, watch for the move back up again

I have been trading the NZD for over 30 years. I have never seen the NZD/USD move as far, as fast...ever!

Thank God it's Friday, but still getting offshore calls wondering when it is safe to buy again.

I posted here in July that I thought the NZD had topped out, and I repeat:

The NZ dollar has topped out at 0.8109, nearly 17% from the lows seen at 0.6715 in March 2007. Now looks to retrace and could pull back into the 0.7400 area before stabilising.

The reason?

Not our economy, Not the RBNZ actions, Not any Government moves.

Purely offshore pressures.

See story below: Volatility sweeps global markets.

That's the reason: the rise of global risk aversion; something the RBNZ has been praying would happen.Investors are pulling money home, worried about potential losses.

It could run some way yet, as the US property market disasters come home to roost.

That means, currencies that were weak, like the Yen and Swiss franc, will be stronger, as funds are repatriated.

Currencies that were strong, like the NZD, AUD and GBP, will be weaker, as funds are withdrawn.

That means the NZD will weaken.Might not go too far yet, but that is the trend, with the first target 0.7500.

What would stop this going too far are calm markets.8.25% return is hard to beat, and that means the NZD cannot stay down for long.

Equally the Japanese will not want a strong Yen, and may talk of intervention again.

But for now, and the next few weeks, the NZD is finally on the back foot.

Well it has certainly gone further than I thought it would.

But the short NZD position taken at 0.7950 will certainly pay a few bills, having just exited at 0.6750.

Best to stay out of the markets now, until things stabilise.

I think the NZD/USD is close to the base around 0.6600-0.6700 area.

The next trade will be buying NZD selling JPY, ie a carry trade (yes they still work really well!).

But looking for the entry point at present. With any luck the Bank of Japan will start to protest at the stronger Yen, and a base in the NZD/JPY will appear.

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