RBNZ confirm intervention to weaken the Kiwi

New Zealand Dollar Research Report

RBNZ confirm intervention to weaken the Kiwi

PM John Key also states that NZD fair value should be much lower

Sterling New Zealand Dollar (GBPNZD) FX Technical Analysis

Over the weekend the RBNZ confirmed that they intervened in the currency market in August selling NZD 521m - the RBNZ had previously hinted that intervention was likely but the confirmation seems to have caught the market off guard somewhat. Combined with comments from the NZ Prime Minister John Key who stated the goldilocks level (fair value) for NZDUSD was around 0.6500 whilst the market has been trading 0.77-0.83 range and there’s scope for further NZD weakness. A similar move in GBPNZD of 16-18% would translate to 2.40-2.45 level if the GBPUSD rate was to remain fixed at current levels (that’s unlikely as the USD is outperforming the pound). Also it’s merely the preferred level for the PM Key in the same way that the Eurozone would like inflation between 2-3%, in other words, easier said than done.

However the fact that the central bank physically intervened rather than just cited concerns about the strength of the NZD shows how committed they are to bringing the Kiwi down to a more neutral level. With the market now fearing the threat of further intervention, the Kiwi will likely remain weak and has the potential for further bouts of heavy volatility.

On the charts the NZD is now looking grossly oversold so it’s possible that we’ll see a correction initially though and that would likely see GBPNZD pull back towards support at 2.02-20250 that was acting as resistance for what seems like an eternity. From there it’s dependant on further commentary from RBNZ/intervention as well as the usual US Fed policy rhetoric as the unwinding of higher yielding currencies like the Kiwi continues. It’s unlikely we’ll see an interest rate increase from the UK or US until Q2 next year but continued positive data out of the two territories will be GBPNZD supportive.

For NZD Buyers

With 2011-12 double top resistance at 2.1040 that’s likely to be the major level on the way back up. A decisive break of that level would be significant but it’s possible that we’ll consolidate between 2.00 – 2.10 for the moment. On the downside any weekly closes below 2.0250 could open up 1.90 retest.

For NZD Sellers

Whilst we’ve heard the overvalued NZD rhetoric from the RBNZ before, the August intervention in the markets; the US Fed tapering of their QE program and the approaching 1st interest rate hike for the UK and US in the next 6-9 months all conspire to add weight to the argument that the last 4 years of NZD strength are behind us. It’s probably sensible to have a stop loss order in above 2.10 if you are keen on trading on a break back below 2.00 or alternatively get the deal booked when the market finds the 2.0250 support