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Contributors “NZD/USD” Currency Pair: Has the Kiwi Found Support for the Near Term?

When thoughts of trading a commodity currency arise, traders most often think of the Canadian Dollar or the “Aussie” from “the land down under”, but a few also know that “the land of the long white cloud”, New Zealand, has a currency worthy of their respect.  The “Kiwi” may be the low volume leader of the seven “majors”, but it has been on a bull market run since March of 2009, rising from $0.489 to $0.881 until the end of this past July.  From that point on, the Kiwi has fallen as market sentiment deteriorated, retrenching down to the $0.747 range.

Has the New Zealand Dollar reached a bottom?  This commodity currency derives its relative value from agricultural exports.  While the Aussie benefits from valuable rocks in the ground, the Kiwi wins from things that grow from the ground or walk upon it.  Sheep outnumber the population nearly 15 to 1.  As with Australia, New Zealand’s export trade has fed their Asian neighbors as their economies have emerged with favorable growth dynamics over the past decade.  Recent slowdowns in the region have also dampened outlooks for all exporting countries.
As for near-term prospects, the diagram below provides a few insights:

The chart depicts the daily pricing history for the “NZD USD” currency pair.  The Ichimoku indicator has been added to give a broader view of what is transpiring.  Invented in the fifties by Japanese commodity enthusiasts, the combination of the “Kumo Cloud” and selected moving averages has recently drawn support from a subset of traders.  No less than three sell signals have occurred during the pullback that began in August, two of them happening at intersections beneath the “Cloud”.

As for the months ahead, it should be noted that the Kiwi has been repulsed each time it attempted to penetrate the “Cloud” of resistance.  Its current valuation is at a previous support level from April and is also resting on the border of a long-term triangle formation.  The force behind recent trends has also dampened, if the ADX indicator is to be believed, but volatility has risen to a new level, in line with the general market.

For commodity currencies, the fundamentals of the global economy tend to have a heavier weight.  Demand for commodities has been plummeting, especially when China warns that activity may be slower than expected.  However, the “gravity” due to the European debt crisis and the inability of our “Super Committee” to do anything resembling “super” has kept the Kiwi from breaking out of its present triangle pattern.

The Ichimoku indicator is known for removing market “noise” when used at longer timeframes.  The cloud also projects future levels of resistance and support, unlike most any other favored indicator.  The present cloud “picture” looks eerily similar to the one from a few months back.  The past may not be a guarantee of the future, but the pattern above would seem to suggest that another test of the cloud’s resistance is imminent.  If pricing can break out of the triangle formation in the process, then more favorable valuations may be in the offing.

Of course, it will take more than a few lines on a chart to make these events transpire.  Europe is expected to muddle along through the next year.  China will focus on developing their domestic economy with infrastructure projects dissolving their huge foreign currency reserves.  Lastly, the U.S. economy is showing modest signs of recovery, even though 2012 is an election year.  While timing is everything, this scenario could only move the Kiwi higher.  Time will tell.

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