NZD/CAD Approaching Major Low

Alan Penny

16 October 2019

3 min read

flags of New Zealand and Canada

  • New Zealand dollar continues to lose value
  • Crude oil forming base, possibly lifting CAD value
  • Moving average sloping lower
  • Longer-term downtrend

The New Zealand dollar has had a rough trading session on Wednesday, as we continue to reach towards the lows. At this point, the market has seen the 0.8235 level offer support in the past, and it has offered a little bit of support earlier during Wednesday’s trading.

This is an area that was supported a couple of weeks ago and saw the market bounce significantly from there. However, we have since rolled over drastically. At this point, it looks as if the longer-term trend continues to be a major issue.

Crude oil and Asia

This pair will be heavily influenced by crude oil and Asia. From the crude oil standpoint, the Canadian dollar strengthens as crude oil does, as the Canadians are massive exporters of petroleum. With that in mind, it makes sense that the CAD has picked up in value.

On the other side of the equation here, you have the Asian economies. New Zealand is a massive exporter of soft commodities to Asia, and the better off the Asian economies are, the more they will buy. It drives up demand for the New Zealand dollar by proxy.

Unfortunately, the US/China trade talks continue to flounder, and that will undoubtedly put bearish pressure on a lot of Asian currencies, as well as the Australian and New Zealand dollars. At this point, it is likely that the trend for the New Zealand dollar will fail, and since there’s been no serious headway made between Washington and Beijing, this makes sense.

Technical analysis

NZD/CAD chart

Both moving averages on the chart, the 50-day EMA shown in red and the 200-day EMA indicated in black, are sloping lower and are spread out quite nicely. This normally suggests that there is a strong trend intact. Plus, the fact that the market recently bounced from the lows to test the 50-day EMA before rolling over also suggests that longer-term shirt traders continue to look at this with a very bearish mindset. Granted, the market did bounce slightly from the lows, but it does seem like it’s only a matter time before traders give way.

The market has reached the 100% Fibonacci retracement level from the original bounce, but it now will probably go looking towards much lower levels. The first of these would be the 0.80 CAD level, which is the next large, round, psychologically significant number.

shorting the Kiwi dollar against the Canadian dollar should continue to work out in your favor

Rallies at this point look like they will continue to struggle, so shorting the Kiwi dollar against the Canadian dollar should continue to work out in your favor. In fact, it’s not until the 0.85 CAD level is taken out to the upside that one can say the trend is at least attempting to change.

Another chart to watch would be the WTI Crude Oil market. If that can break above the $55 level, it’s likely that this pair will break down significantly as well.

Written By
Alan Penny

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