The Kiwi-Dollar Pair Could Fall Further

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Includes: ENZL, UDN, USDU, UUP
by: Discount Fountain
Summary

The Reserve Bank of New Zealand is getting ready to lower rates further.

The Kiwi dollar is set to depreciate further as a result.

I expect the currency will hit a prior low of 0.64-0.65 against the USD before recovering.

The Kiwi dollar has been on quite a roll up until recently.

Over the past six months, the currency has seen gains over all the majors, including the Japanese yen:

Source: investing.com

The growth in the NZD has been particularly surprising given the weakness we have been seeing in the Aussie dollar - the NZD had been up by nearly 6% against the AUD earlier this year.

That said, the currency has been falling over the past month. In particular, with the Reserve Bank of New Zealand hinting at a rate cut from the benchmark rate of 1.75%, this has led to a depreciation in the currency. With a growth of 2.3% representing the slowest growth since 2013, a rate cut could come as early as next month in order to stimulate growth once again.

Additionally, what also has been putting a strain on the New Zealand dollar has been rising metal prices. Conversely, in spite of a period of weakness, the Aussie dollar has been making back gains as a result of a rise in iron ore prices. Should the AUD continue to recover from here, then it's likely that the NZD will see a further drop.

Specifically, let's take a look at the 10-year interest rate chart for Australia and New Zealand. Up until recently, we see that rates in New Zealand were higher than that of Australia:

Source: tradingeconomics.com

However, with rates in New Zealand having seen a significant reduction, then any further rate cuts will serve to weaken the currency further. Over the past few years, part of the appeal of the Kiwi dollar has been higher rates, but this has ceased to apply.

Additionally, while inflation in Japan still remains below the Bank of Japan's goal, figures for March did rise slightly. Should this continue, then it's likely that we would see "safe-haven" currencies such as the yen rise further.

Ultimately, the NZD has had a good run, but I do not see it lasting. Rates in New Zealand are set to come down, and I anticipate that the currency will weaken further.

Source: investing.com

It's conceivable that the NZD/USD could fall to a prior low between the 0.64 and 0.65 range before we might see any recovery.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.