Too late to long the Kiwi?

8 November, 2013

Last month, the Blackwell Global research team composed an article regarding the impending opportunity to go long on the NZDUSD. Since then, the currency pair has continued the bullish trend. A collection of impressive NZ economic results, coupled with the US government controversies crippling the value of the USD, have proved bullish for the currency pair.

According to the chart below, the currency pairs bullish trends may continue. Below the diagram, we will look at some of the reasons why this long term, positional trade is worth consideration.

New Zealand Economy Emergence:

Only last night, the New Zealand economy added 27,000 jobs to their payroll, over double the expectations. The unemployment rate reduced from 6.4% to 6.2%. Admirably, just one year ago, the NZ unemployment rate equalled 7.2%.  

Overall, the economy is expected to grow 2.5% this year, and 3.5% in 2014. The likelihood of the GDP growing at this rate, will likely correlate with the unemployment rates also decreasing.

Other aspects of the New Zealand economy are also showing growth. The latest consumer confidence reading showed the highest level in over two years. Survey firm, Nielsen indicated that consumer confidence in New Zealand is higher than Australia, and a recent economic resurging, United Kingdom.  

Finally, the RBNZ is showing confidence regarding the future of the NZ economy, by looking to increase their lending rates in the near future. The Wall Street Journal predicts the positive adjustment in interest rates, will happen by next March.

Uncertainty over the US Dollar:

Standard and Poors predicts the US government shut down controversy has eradicated at least $24 billion from the US economy. However, we are not yet sure how much this will shave away from the 4Q GDP. Goldman Sachs estimates at least 0.6%, but the Business Times fears it will be 0.8%.

The Federal Reserve is also set to delay tapering their QE stimulus until potentially next March, which will continually destabilise the value of the Dollar. They have expressed that if government spending remained consistent, the US GDP could have potentially grown 3.2% this year.  Macroeconomic Advisers suggest that the US government budget cutbacks have left this year’s unemployment rate, 0.6% higher.

According to the US labour department, the economy is still 1.8 million jobs fewer, than in 2008. Recent Non-farm payrolls have disappointed, putting extra pressure on this coming Friday’s release. From January to March, the US economy added on average, 207,000 a month. From April to June, 182,000. From July to September, the US economy only added 143,000 jobs a month.

There is clear validation that the US employment economy, has become lethargic in 2013. We are yet to find out what impact the threat of a US debt default has had on business hiring moving forward.  

Final thoughts:

In conclusion, there are clear signs that the New Zealand economy is one that is on an uptrend. On the other hand, the future direction of the USD continues to show a lack of direction.

The rate at which the US can add payrolls to their economy is key to this currency pair. The longer it takes, the higher the possibility remains that the Federal Reserve will carry on their Quantitative Easing stimulus in the mid term. Collaboratively, the US NFP’s disappointing and the lack of a QE taper, will depreciate the value of the USD. This will work in the favour of the NZDUSD.

In reference to New Zealand, the likelihood of an increase in interest rates remains strong. This will increase the value of their currency, and gain universal attention. Adding more jobs to their own payroll will speed up the process and provide welcome boosts to the currency pair.     

This is still a currency pair that can carry on increasing in value, and can become useful as a proportional trade.

Written by Jameel Ahmad.

Follow Jameel on twitter @JameelAhmadFX.


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