New Zealand dollar to rise on strong dairy prices

On October 20, we had suggested taking a long position in the NZD/USD pair at about 0.7200, with a target of 0.7320. The binary traders were advised to invest in a one touch call option. The target was met in about two weeks, when the Statistics New Zealand reported better than anticipated employment change.

However, following the victory of Trump in the US election, the commodity currencies were hammered immediately by speculators. This pushed the currency pair back to a low of about 0.7100. Many traders believe that the NZD/USD pair will not exhibit any kind of trend reversal and the fall will continue. The trend can be understood by studying the recent economic data and geopolitical developments in the US and New Zealand.

The most important factor which affects the currency strength of the New Zealand dollar is the dairy prices. Dairy products account for about 30% of the New Zealand’s export revenue. The Global Dairy Auction index rose 4.5% in the auction conducted on Tuesday. The average price of dairy products increased to $3,519 per ton, which is about $500 higher than the break-even price of the dairy farmer in New Zealand. Such a scenario is going to aid the strengthening of the New Zealand dollar.

Financial Times

The Reserve Bank of New Zealand also issued its exchange rate outlook for the rest of 2016 and the full year 2017. The Central bank expects the NZD/USD exchange rate to stay above 0.72 during 2016 and fall to 0.67 only in the second half of 2017. The outlook would temporarily discourage punters from going short in the NZD/USD counter.

The core retail sales data reported by the US Census Bureau indicated that the sales at the US retailers increased 0.8% in October, compared to previous month. The data not only exceeded the market’s expectation of 0.5% increase, but also the upwardly revised 0.7% growth reported in September. However, the data had little effect on the New Zealand dollar. The analysts believe that the higher benchmark interest rates of 1.75% in the New Zealand would continue to attract investors. Furthermore, the contrarians argue that the strengthening of the US dollar is actually working against the Trump’s plan by encouraging the factories to shift outside the US. So, we believe that the decisions taken by Trump would ensure that the US dollar does not strengthen further as it would prove detrimental to his plans.

Considering the above facts, we believe that the NZD/USD pair would march upwards in the days ahead.

The NZD/USD currency pair has bounced off once again at the proven support of 0.7080. The zero reading of the stochastic indicator warns the possibility of an impending reversal.

So, a currency trader can consider going long in the asset pair with a stop loss order below 0.7000. The long position can be closed when the NZD/USD pair gallops to a high of 0.7180.

In the similar manner, a trader can purchase a one touch call option to gain from the prediction made through fundamental and technical analysis. The target level for the call option can be 0.7150 or lower. A two week time period would be enough for the expiry of the contract.

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