NZD short: The US hard landing hedge?

Giles Coghlan LLB, Lth, MA Financial Source

High beta currencies, like the Australian Dollar and the New Zealand Dollar, tend to fare badly when markets are risk off. However, the NZD is one of the worst-performing currencies during a recession. Bloomberg reports that JPMorgan looked back at the last 40 years and found that the NZD tends to perform very badly around a recession and worse than the AUD.

Latest New Zealand GDP numbers

Last week New Zealand GDP came in lower than expected with the Q4 reading at 2.2% vs 3.3% expected. The slower growth outlook means that the RBNZ will be seen as less likely to hike rates and that is an extra headwind for the NZD.

From an index level, the NZD has fallen into a near-term support region which will be crucial for the NZD’s direction. The NZD is also around the lowest levels it has been for this year as US recession fears increase. Watch this key support level marked as a break of this region opens up more technical downside.

The narratives to watch

If the prospects of a US hard landing grow, watch for further bank risk to increase expectations of a US recession, then the USD could find some strength. That could weaken the NZDUSD pair. This is why Morgan Stanley is currently projecting a move down to 0.5800 for the NZDUSD. Watch the price around the 100 and 200 EMA on the daily chart to get a sense of the technical direction of the pair moving forward.

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Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

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