Inside the Currency Market: NZD/USD

The driver of New Zealand’s economy is a section inside Inflation numbers called Tradables and Non Tradables. New Zealand looks deep inside the CPI index at the drivers of CPI which is separated into service Vs what’s produced in the economy. Service is considered Non Tradeables and production is called Tradeables since it has an intrinsic value. Its the production aspects that drives the Inflation rate as well as overall determinations to raise or lower OCR. Its a brilliant system also adopted by its brother Australia. Simplified, If production is up overall then the NZ economy is moving along and the RBNZ can look to raise. Production down then the economy is not moving correctly. The 3 OCR raises in 2014 saw production tradeables just humming along smoothly. It was almost an easy decision to raise. But then the world economy slowed and so did NZ production as measured by Tradeables. So the RBNZ rescinded the 3 rates rises and now stands at much lower production levels. Add in the higher exchange rate from past bouts of high production then Exports also saw a massive reduction. It was a trap situation for New Zealand but one they couldn’t control. Now the exchange rate is far lower so any higher production means New Zealand can export at a cheaper price. The main Milk export however is at quite low production levels and isn’t expected to see sustainable levels until 2016 based on Fonterra;s lastet figures. What should the smartest central bank in my opinion do under current circumstances. Money markets say nothing will occur in an OCR move. We;ll hear the same old story, they want exchange rate lower, commodity prices lower and world economies to get moving again to benefit New Zealand.

NZD/USD. Bottom. 0.6355. Range break above 0.6419, 0.6450, 0.6468, Below 0.6354, 0.6323, 0.6305. Overbought sell point 0.6415. Strategy. Longs above 0.6387, Target 0.6415. Then reverse short to 0.6400. Points on the way up, 0.6392, 0.6402, 0.6415.

Shorts below 0.6386, Target 0.6370. Points on the way down, 0.6384, 0.6373, 0.6370, 0.6354 Bottom. Bottom breaks then next 0.0.6338, 0.6323.

Brian Twomey, Inside the Currency Market, btwomey.com

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