NZD: Bearish tone develops – AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that we may be entering a persistently bearish phase for the NZD, and, more broadly, a bullish phase for the USD.

Key Quotes

“Over the last 18 months or so, FX markets have been prone to snapbacks and on the whole lacking consistent direction. It has been difficult to catch and hold onto a trend. The NZD has been a prime example.  But we are sensing something different developing in the last two weeks.”

“On momentum indicators, the NZD is looking oversold, and this might encourage thoughts of some profit-taking and demand from technical traders seeing support around the December lows.  However, from a somewhat longer term perspective, the pace and persistence of the recent fall in the NZD may reveal a significant shift in sentiment towards the currency.”

“Stepping back a bit to look at the NZD chart over slightly longer time frame, the NZD appears to have broken a rising trend over the last year to 18-months.  The NZD has ended a pattern of higher-highs and higher-lows from Sep-2015 to Sep-2016.  A break of the December lows (set after the Fed raised rates) would make a second lower-low after a lower-high, signaling a developing downtrend.”

“After another period of rebound in the NZD (and broader setback for the USD) in the first month or two of this year, market positioning appears to have purged long positions in the USD, including against the NZD.  As such, the market does not seem to be excessively long the USD, and may end up playing catch-up trying to re-establish long USD positions if its recent rebound builds momentum.”

“As at 28-Feb, just ahead of the recent surge in the USD, CFTC currency futures positioning was moderately long AUD and NZD. It was also moderately long CAD and had reduced its total net long USD position to modest levels.”