Increase in dairy prices turns New Zealand dollar bullish

On October 10, we had recommended going short in the NZD/USD pair, near 0.7180. For binary option traders, we had suggested purchasing a one touch put option with a target level above 0.7030. The target was achieved within five trading days.

Surprisingly, after hitting the target level of 0.7030, the currency pair reversed again to touch a high of 0.7180. So, does this grant another chance to go short or will the uptrend remain intact? To determine the probable trend, let us study the recent economic and geopolitical news related to the NZD/USD pair.

On Tuesday, Statistics New Zealand announced that the consumer prices increased 0.2% in the quarter ended September, compared to the June 2016 quarter. The market was expecting the consumer price index (CPI) reading to remain flat, compared to the earlier quarter. In the second-quarter, the CPI reading increased by 0.4%. The better than anticipated rise in the inflation rate is expected to strengthen the Kiwi dollar.

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The CPI data has certainly created a divided opinion among the analysts about the possibility of another rate cut by the Reserve Bank of New Zealand in November. As of now there is no hint from the RBNZ regarding a rate cut in November. This has given an opportunity for the speculators to build a long position in the New Zealand dollar. The GDT index (Global Dairy Trade) reading increased 1.4% in the dairy auction conducted in New Zealand on Tuesday evening. The average price of dairy products, which account for the major export revenue of New Zealand, increased to $2,964 per ton. A rise in the dairy prices usually assists in the strengthening of the New Zealand dollar.

In the US, the industrial production grew 0.1% m-o-m in September. However, it was below the analysts’ expectation of 0.3% growth. The manufacturing output grew 0.9%, while the mining output increased by 0.4%. However, it was largely offset by a 1% decline in the utilities production, which reflects a slowdown in the demand. The analysts and market participants in general are still hopeful of a Fed rate hike in December. However, the soft economic data is certainly expected to have a temporary dampening effect on the Greenback. Thus, we anticipate the NZD/USD to remain bullish for a short-term.

The NZD/USD pair is currently in an uptrend, after testing the firm support at 0.7050. Both the main and signal line of the MACD indicator have crossed above the zero line. Thus, we can anticipate the NZD/USD pair to remain bullish.

So, a currency trader can go long in the NZD/USD pair at the current level (0.7200), and capitalize on the bullishness. To limit losses from the long position, a stop loss order can be placed below 0.7120. The long position can be sold when the exchange rate of the currency pair touches a high of about 0.7320.

To create a similar position in the digital options market, a trader can purchase a one touch call option from a suitable broker. Choosing a call option contract with a strike price of 0.7300 or lower and an expiry date in the third-week of November would boost the chances of success in the trade.

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