The New Zealand dollar has fallen significantly during the trading session on Tuesday as traders continue to pay attention to the interest rate differential between New Zealand and the United States.
Furthermore, the RBNZ sounds very dovish while the Federal Reserve sounds very hawkish.
In fact, we have had several Federal Reserve speakers recently suggesting that inflation is still their major concern. A lot of that inflation comes from the energy situation in the Middle East. Beyond that, we also have a situation where bond yields are just screaming higher. As long as that is the case, it does favor the U.S. dollar. It means that money likes to go where it gets treated best, and higher yields in the bond market in the United States over New Zealand are a major factor. So, it all ties together for negative trading in this market.
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Furthermore, the New Zealand economy is highly levered to Asia, and Asia has a serious problem with a lack of energy coming, or at least that could be the case. If that does in fact come to reality, it would be devastating for New Zealand.
We are overextended
That being said, we are pretty overextended to the downside, so a short-term bounce would not be the most ridiculous thing to imagine. But I imagine there is plenty of resistance all the way to at least 0.5750.
So I look at rallies that show signs of exhaustion as potential selling opportunities, especially if we see interest rates pick up a little bit in the United States. Pullbacks in those interest rates could be what causes the bounce. We will just have to wait and see. But in general, I still prefer the U.S. dollar over the New Zealand dollar, and that probably remains the case for the foreseeable future.
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