NZD/CAD: STALLING BY 78.6% FIB RETRACE AND VERY OVERBOUGHT; SELL @0.7280
Fundamental Catalyst – On Wednesday, RBNZ Governor Bollard said that the rise in long-term rates was unwarranted and that he expected interest rates to remain at low levels for an extended period of time. This was followed by Thursday’s FinMin English remarks, with the NZ official saying that the rise in Kiwi was unexpected. While official speak quite often does little to move markets, and particularly in New Zealand, we feel these comments should not be taken lightly and could start to weigh on the higher yielding antipodean. The NZD has also been a clear beneficiary of the improved market sentiment and increased risk appetite over the past several days, with the currency showing significant relative strength on this theme, rather than on any underlying fundamental strength within the local economy. As such, we view the currency as well overvalued at current levels against its commodity cousin and see the risk from here for a material corrective pullback, with any sign of elevated risk aversion or profit taking in global equities to exacerbate the NZD outlook. In Canada, while BoC Carney did give a downbeat assessment on the economy yesterday, there was some silver lining with the central banker stating that Canadians could “also expect that once the global recovery begins, the Canadian economy will recover faster than many other industrialized economies." This bodes well for Canada and should start to be reflected in the cross rate over the coming days. Finally, with today’s event risk in the form of US NFPs, we like the idea of eliminating USD exposure on our trade.
Techs – Nzd/Cad: The cross rate has been rallying sharply since early March, from the 0.6400 area to just shy of 0.7300 thus far ahead of the latest minor setbacks. Daily studies are now severely overextended and call for a much needed and healthy corrective pullback. The overall trend still remains grossly bearish, and following today’s sharp push higher to the 78.6% fib retrace off of the 0.7580-0.6150 move (Oct08-Feb09), we have decided to initiate a sell recommendation with limited upside seen ahead. All relevant SMAs have been well exceeded and we will look for a minimum pullback to retest the 10-Day SMA at 0.7080, which has been supporting the entire push higher. Next key short-term support comes in at 0.7145 with a break below to accelerate declines. Strategy: SELL @0.7280 FOR AN OPEN OBJECTIVE, STOP @07420. Stops to be trailed to cost (break-even) on a break back below 0.7200. Recommendation to be removed if not triggered Friday.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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