The New Zealand dollar was well prepared for the Fed decision: recent data was positive and so were flows of money into real estate in the small country. When the FOMC announced the NO taper surprise, the New Zealand dollar jumped higher and didn’t really look back.
NZD/USD is over 600 pips above the lows seen early in month. Is it time for consolidation? Or can the year to date high of 0.8676 be challenged soon? Update.
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The daily chart of NZD/USD looks a bit one sided at the moment:
Taper boost to an already strong NZD
The New Zealand dollar is a “risk currency”: when investors seek a higher yield, the kiwi is one of the options. While the interest rate is relatively low in historic terms for New Zealand, only 2.5%, this is higher than the near zero levels in many developed countries. And, the money doesn’t necessarily go into government bonds, but to real estate.
A high level of QE in the US means more dollars printed looking for investments, and Auckland’s homes seem to be a good option for quite a few investors. The RBNZ, New Zealand’s central bank, tries to talk down the value of the kiwi at every opportunity, but this doesn’t always work. Macro prudential tools are considered to tackle the housing market.
In addition to QE tapering, the kiwi received a relatively positive GDP report: while the economy grew by only 0.2% in Q2, as expected, the YoY growth rate exceeded expectations with a rise of 2.5%. This was thanks to an upwards revision of Q1 growth from 0.3% to 0.4%.
All this led the kiwi to stronger levels.
TECHNICAL BEAM
Last week we saw an unprecedented bullish move break a key resistance at 0.8425 leaving a negative loss value after hitting our protective loss. Following this break, we expect this technical resistance to function as a support; pushing the pair north-east of the chat and targeting 0.8925.
Trend remain rock bullish and target in sight for this week, intact.
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