As we mentioned in our previous posts, this low-volatile environment has played in favour of carry trade currencies, and especially the Kiwi. Since the RBNZ has started its monetary policy tightening cycle this year raising its benchmark three times by 0.25% to 3.25%, the NZ dollar keeps appreciating against the major currencies. For instance, NZDUSD is trading at its multi-year high above the 0.8800 level and seems on its way to retest its strong resistance at 0.8840 (Aug 1st 2011).
However, the next central bank’s meeting is on July 24 and Governor Wheeler could announce a pause in the rate hike cycle stating the Kiwi is starting to be overvalued. In our opinion, we could see a pause in the cycle at the next meeting especially as the Fed hasn’t pronounced itself on a potential rate hike (based on yesterday’s minutes).
Therefore, the Kiwi could potentially enter in an ‘overbought’ area in the coming days and it may be a good time to take the opportunity to sell it. We chose NZDJPY: as you can see it on the chart below, the pair has appreciated by a bit more than 4% since the beginning of the month, with the 14-day acting as a support (buy dips opportunity). However, we think that the 90.00 could act as a strong resistance on the topside (year’s high: 89.90 reached on April 1st). We went short this morning at 89.53 with a target of 88.10 at first (Stop loss above 90.20).