Buying NZDSGD short term

Some of our clients have asked whether it is time to buy NZD?

The fundamental view of the New Zealand economy remains weak and there is still further room for interest rate cuts which will continue to put pressure on the currency.

The aggressive cut by RBNZ from 5% to 3.5% on January 29th, sends two clear signals that the government acknowledges the severity of the economic downturn and is doing something proactive about it and that inflation is a lesser issue.

Traditionally, interest rates of NZ has always been higher than the rest of the G7 countries. A year ago when the USD rate was at 5%, the NZD rate was at 8.25%, today the USD rate is 0.25% and the NZD is 3.50%. Therefore, on a relative basis, the trade-weight impact would be minimal.

So while we acknowledge that the New Zealand has still more downside to go before recovery happens, hence, the negative 50 day and 100 day moving average as seen in the chart.

However, because of the proactive interest rate cuts and stimulus package, the market views these actions as positive and helpful which is why the short-term outlook for the NZD appears to be ‘bullish’ from the stochastic momentum.
The Bollinger wave also suggests that in the near term, NZD has bottomed and a possible uptick is in sight. Normally when the Bollinger waves begin to contract like what we see her on the daily chart, it signals a possible breakout in the near term. Now whether it is going to break upwards or downwards, it is anyone’s guess.

We believe the NZDSGD will range trade for the next 3 months between 0.72 to 0.85.