In this episode of Futures Measures Pete Mulmat is diving into the the New Zealand dollar (/6N) to explain the recent market action possible moves in the near future.
Pete explains how the New Zealand dollar (the Kiwi) is a commodity currency, much like the Aussie dollar, due to nature of the New Zealand economy. The New Zealand economy relies heavily on the exportation of natural resources. Coupled with large exports in the agricultural sector, this means that the economy has a huge exposure to international commodity prices.
Since the beginning of 2016 the Kiwi is down 5% against the U.S. dollar. Looking ahead there is some indication that the Kiwi may continue to tumble, given that the Reserve bank of New Zealand is expected to cut rates this year. If this happens and the U.S. raises rates again, this would further strengthen the U.S. dollar against most other currencies, including the Kiwi.
The economic situation in New Zealand is another big factor in the current value of the Kiwi, as unemployment is on the rise and GDP growth is slowing.
Pete's possible trade for the day takes a look at the Aussie-Kiwi Cross. This spread has fallen far from its highs several years ago. Trading this spread gives an opportunity to short the Kiwi while having long Aussie dollar against it, looking for the spread to widen.