New Zealand Dollar Continues Downtrend Against Canadian Dollar

Alan Penny

24 October 2019

3 min read

flags of New Zealand and Canada

  • Longer-term downtrend confirmed yet again
  • 50-day EMA offering resistance
  • Potential rectangle being formed

The New Zealand dollar has rolled over a bit against the Canadian dollar during trading on Thursday, as the longer-term trend seems to be reasserting itself. As such, it should lead to a nice short-term setup as traders continue to look at this area as either accumulation or simple consolidation. At this point, one would have to take the attitude of “consolidation leads to continuation”.

External factors

The Canadian dollar is very sensitive to the price of crude oil, as Canada exports so much of it to the rest of the world. On the other hand, the New Zealand dollar is extraordinarily sensitive to Asia and global growth, as it is a commodity-based currency. Granted, it is a “soft commodity”, but it does a significant amount of exporting to China, which is involved in a trade war dispute with the United States. Also, it has been starting to post less than convincing economic numbers.

the NZD/CAD pair is a perfect proxy for everything that’s going on

In a sense, the NZD/CAD pair is a perfect proxy for everything that’s going on, with crude oil rallying lately and the US-China trade war going on. Negotiations have produced very little between Beijing and Washington, and therefore it will continue to put a bit of a crimp on the New Zealand economy. With this in mind, it’s no huge surprise that this market continues to drift lower.

Technical analysis

NZD/CAD chart

The 50-day EMA seems to be followed very closely in this pair, and it has offered resistance at the last couple of long-wicked candles. Beyond that, those long-wicked candles show that, although buyers tried to pick the pair out, they simply could not.

A couple of shooting stars in a row is indeed a very negative sign. Now that the market has broken below those candlesticks, one would have to assume that the momentum is going to pick up.

To the downside, the 0.8250 level offered support the last time we rolled over, so it would make sense for it to be the target going forward. If that level gives way, then it’s very possible that the 0.82 level gets targeted next, based on history.

The trade going forward

The trade going forward is to sell this pair if it starts to rally on short-term charts. This will be true as long as the market stays below the 0.8450 level – but at this point, you must work with the assumption that the bottom is going to hold, and that this is a short-term opportunity.

The alternate scenario is that the market breaks above the 0.8450 level and goes looking towards the 0.85 handle. This is less likely, based on the last couple of weeks showing just how resistant that area is going to be. With that in mind, it makes sense to fade any attempt at strength that presents itself in this market over the next few days.

Written By
Alan Penny

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