NZD/USD and Interest Rates 2: Levels, Ranges, Targets

Yesterday’s reported overall NZD/USD range was 0.7322 to 0.7393 with must breaks at 0.7378 and 0.7332. Actual range was 0.7335 to 0.7401 for 66 pips. Yesterday’s reported range was 71 pips Vs actual 66 pips traded. Yesterday, NZD/USD contained 38 available pips to trade which means NZD/USD’s range at 66 pips was just under its full potential of range pips at 76 pips. Had NZD/USD traded its 37 pip range as was the case to begin the week then the overall range pips were 74 pips. NZD/USD range pips jumped this week by 2 pips and this is quite typical for NZD.

What accounts for NZD’s increased range pips is GBP, EUR, AUD range pips expanded. USD pairs contracted. Naturally, GBP, EUR, AUD and NZD expanded. If USD range pips expand then EUR, GBP, AUD and NZD will contract.

The most pronounced pair to see USD expansion and contraction is USD/JPY because of the arrangement as JPY/USD Vs USD/JPY contains miles of distance. The JPY pairs see and feel the effects first because USD/JPY is located middle range in its proper place between USD/CHF and USD/CAD. Take USD/JPY break point at 109.42 means JPY/USD 0.0091390. To align properly, 109.42 = 109.421162.

An explanation exists to USD contraction and Non USD expansion is Fed Funds closed 1.34 instead of normal 1.42 on Wednesday’s Fed day. Last time a move of this caliber was seen was last month’s NFP. Its an interest rate story and despite nasty timing for Fed Funds.

Range is the word to replace the tired and lack of definition meaning to volatility as ranges expand and contract daily, weekly and monthly. As those central banks design and construct their currency pairs, would they design a trading system where the average trader won’t understand, won’t figure on their own. Of course not. Random is a fallacious word in a market price because levels, ranges and targets are well known long in advance and a price quantifies perfectly. Quantifies perfectly means the simplest of simple math rather than a convoluted Stats formula. But again, it depends on a trader time frame for trades.
Why NZD is a special pair is because its first in line to trade after American markets therefore NZD aligns its own interest rates from the Fed. Because NZD trades first, it sets the standard for all Asia currency pairs and market prices. Why AUD/NZD is an important currency pair is because at NZD 1.75 Vs AUD 1.50, NZD rates trade above AUD until or unless NZD lowers its interest rates and possibly AUD raises.

What was learned yesterday from NZD Swap rates is prediction of Tops therefore Swap rates are lend rates in the NZD interest rate system Swap Rates are quite different for AUD as those rates are used for AUD prices.

Today’s NZD/USD will see a range from 0.7329 to 0.7404 with a must cross above at 0.7387 Vs below at 0.7338 and 0.7330.

Not mentioned is today’s NFP.  Remember the progression Money Supply, Interest Rates, Currency Price, Economic announcement. The price part is known.


Brian Twomey