NZDUSD Stabilizes While Dairy Prices Pose Risk

by on May 26, 2014 3:00 pm BST

The kiwi has stumbled since reaching .8778 on particularly solid fundamentals and consecutive rate increases from the Reserve Bank of New Zealand (RBNZ). The recent demand in the US dollar has dampened trader sentiment against risk currencies, which has picked up at the end of last week on positive housing data.

“We are overdue for some continued US dollar strength. The US data generally has been quite good to counteract the weak data in the first quarter and we should have some exceptionally strong data going forward,” said Martin Rudings, a senior dealer at Ord Minnett Financial (OMF).

There is also a concern that the recently elevated kiwi exchange rate does not reflect the ongoing weakness in dairy prices. Dairy prices have seen poor showing over the last several auctions, and the weakness is likely to continue. “While we have been attractive to investors offshore because of the high yield, I think the uncertainty about commodity prices is starting to filter through. A lot of offshore people are very long New Zealand dollars and I think as soon as there is some doubt, they start to scramble out. Dairy prices have probably got a little bit further downside in them,” Rudings continued.

NZDUSD is being supported in today’s holiday trade, with price action in minor demand at .8540. The 72 EMA is acting as secondary support. A pullback to .8575/80 would test the first level of price resistance, and the 50 EMA, prior to testing the medium-term downward trend at .8600.

A close through .8540 could begin a larger decline to .8500.

1D Chart of NZDUSD

1D Chart of NZDUSD