The market will more than likely continue to be very noisy, but I still favor the downside and would be looking for signs of exhaustion on short-term charts to start shorting.
The New Zealand dollar initially tried to rally on Wednesday but gave back gains near the 0.69 level to plunge all the way down to the 0.6750 level at one point. We have since bounced from there a bit, but it certainly took a very bearish turn after initially trying to rally. The 200-day EMA has acted as a brick wall for a couple of days in a row now, and now it looks like we are threatening to break down below the 0.6750 level. If we do, then I think it will open up a move down to the 0.66 handle, possibly even the 0.65 level.
Keep in mind that the New Zealand dollar is highly levered to commodities, which have been getting a bit stretched at this point and have been pulling back after a very big move. That being said, the market has to price in the idea of a global slowdown, some places like New Zealand will certainly feel the pinch as they are major exporters. As the rest of the world’s economy is slowing down, exports coming out of New Zealand will as well.
Another thing to pay close attention to is the fact that there seems to be a lot of “risk-off” type of trading going on out there, which means that the US dollar will continue to attract a lot of attention. As long as that is the case, then I think the New Zealand dollar is going to struggle overall. It is worth noting also that the other risk appetite-based markets have been struggling, with the exception of the yen-related pairs but that has more to do with Japanese rate controls than anything else.
The market will more than likely continue to be very noisy, but I still favor the downside and would be looking for signs of exhaustion on short-term charts to start shorting. The New Zealand dollar does tend to move rather rapidly at times, so please keep that in mind as you are trading it. The market needs to break above the 0.69 level for me to even start to think about the upside, and even then it is probably better to wait until we get a break above the 0.70 level, as it offered so much resistance previously.