Kiwi Dollar: Expect A Rebound Against The Greenback

by: Discount Fountain
Summary

The Kiwi dollar has dipped to the 0.65 level against the greenback.

However, I take the view that profit taking on the greenback might initiate soon.

I see little downside for the NZD/USD, and the currency stands to rise back to the prior level of 0.69.

Last month, I made the argument that I expect the Kiwi dollar to fall further to a low of 0.64-0.65 against the greenback before making a recovery.

The reason I argued this to be the case was that the Reserve Bank of New Zealand had been getting ready to lower rates further, and rising metal prices were placing strain on the currency.

Today, the NZD/USD currency is trading at the 0.65 range, marking a low not seen since last November.

Source: investing.com

However, what is quite interesting is that during this time period, we have actually seen the Kiwi dollar rise against other major currencies, including the Aussie dollar, euro, and Swiss franc:

Source: investing.com

Given that we are seeing strength for the Kiwi against certain currencies, this might mean that we could well see a rebound in NZD/USD from here if strength in the greenback starts to falter.

The strength in the NZD is surprising, particularly considering that the Reserve Bank of New Zealand decided to cut the official cash rate by 25 basis points earlier this month to a rate of 1.5 percent.

That said, the situation in New Zealand as regards interest rates is not unique. The European Central Bank decided earlier this year to delay the ending of quantitative easing measures due to weak economic growth, Switzerland continues to maintain negative interest rates, and Australia has also had to recently lower interest rates in the interests of spurring economic growth.

Were New Zealand alone in having to reduce rates, then the Kiwi dollar would likely be trading at a significantly lower level than it is at the moment.

One of the major reasons for strength in the greenback has been a flight to safety on the part of investors, due to rising tensions as a result of the US-China trade war. The greenback is trading near a two-year peak as a result, and eventually the dollar will reach a ceiling whereby the market will ultimately take profits on the gains seen in this currency.

At the moment – given the uncertainties posed by the trade war and Brexit, the dollar could have further room to run for the moment.

That said, when one looks at the NZD/USD over a longer period, we see that the NZD/USD is meeting resistance at the 0.65 level, which was reached in October of last year, and February 2016 prior to this:

Source: investing.com

From this standpoint, the currency seems to be approaching a key resistance level against the dollar. While the greenback may be seeing strength as a result of US-China trade tensions, my view is that the dollar will see a fall should this issue take a backseat in the next month, and the NZD stands to rise back to the 0.69 level as a result.

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.