NZD/CAD hangs on after interest rate cut

Kate Leaman
Kate Leaman

8 May 2019

The New Zealand dollar got absolutely hammered after an interest rate cut overnight but has recovered quite nicely since then as perhaps the initial shock has worn off. Keep in mind that the Kiwi dollar of course is a proxy for Asia as well, and as we have a lot of crosswinds right now, it’s not surprising that it’s been very difficult to trade over the last 24 hours.

Major support holds

nzd/cad daily chart

NZD/CAD Daily

After the initial selloff, we have seen support hold across the board for the New Zealand dollar, which quite frankly is rather impressive. In this particular instance, I am looking at the NZD/CAD pair, as the Canadian dollar is also another commodity currency. Canada’s economy has been tepid at best, so it makes sense that if you’re going to risk owning the New Zealand dollar at this point, you don’t want to pair it up with one of the stronger economies such as the United States.

 

You can see on the chart I have a 50 pip support range colored in turquoise that has held, and it now looks that if we can recapture the 0.89 handle, we may have the ability to reenter the range from previous trading. Quite frankly, one has to wonder whether or not it wasn’t just algorithms sending this market lower?

Volatility

Let’s be honest here, volatility is probably the one thing you can count on. This is going to be true with all financial instruments at this point, as we also have the specter of the US/China trade relations not working out. Quite frankly, there is so much noise out there that it is difficult to imagine a scenario where things turn out well over the next several days. That being said, all things are possible.

With that in mind, you will need to keep your position size rather than anything else. Overall, this is a market that has been range bound for a long time so it makes sense that if we get any sense of normalcy we should see a return to that. However, if we were to break down below the bottom of the candle stick for the extraordinarily wild session on Wednesday, then we could see further selling ahead.

All things being equal…

Ultimately with all things being equal, it does look like we are trying to recover. That’s not to say that there won’t be a bit of a fight ahead of us, but in the end if we can clear the little bit of resistance above, this market could give us a couple handle’s worth of gains. That would be simply a return to what we have seen for so long. We know that the New Zealand economy is affected by the US/China trade relations, as New Zealand is such a major contributor of commodities to Asia. That being said, there is much more room to the upside if we get some type of an agreement as the Canadians aren’t affected at all by the US/China trade relations, or minimally at best. Americans will still continue to buy Canadian oil, and Canadians will still continue to buy American goods.

 

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