By: DailyForex.com
NZD/USD had an interesting session on Friday, as it was a carbon copy of the previous couple of days. We had a rally in the early hours, only to be foiled and turned back at the 0.82 handle. This suggests to me that we will eventually start falling again. However, the Kiwi dollar is probably one of the stronger commodity currencies as the RBNZ isn't looking to cut rates currently. Contrast this with their cousins across the Tasman, and you can see that the interest-rate differential will certainly favor the New Zealand dollar in the long run. This is why I believe that shorting this pair is going to be a short-term proposition, and not a cyclical one.
The markets are heavily guarded against risk at the moment, and as such it does make sense that the US dollar would pick up steam against a currency like the Kiwi. However, I see quite a bit of support below at the 0.80 and 0.78 handles that could cause problems for sellers. Obviously, and some type of financial meltdown all bets would be off, but it does look like selling this pair could be a short-term trade and not some type of trend changing event.
Watch the Commodity Markets
In order to trade the Kiwi dollar, you will have to watch commodity markets. The Kiwi dollar typically trade with commodity sentiment rather than any specific market itself. Most of the exports out of New Zealand are of the agricultural type, and as such they are more of a "need" rather than a "want.” This makes a huge difference in a world where China is slowing down, and may not be willing to buy as much copper from Australia, but certainly would keep buying milk from New Zealand.
I believe that out of all the commodity currencies, the Kiwi dollar is probably the best insulated. The Canadian dollar would be a wise choice as well, except for the fact that oil prices are going to be prone to headline shocks out of the Middle East right now. Because of this, I feel that the Kiwi dollar will continue to be the favored commodity currency, and as such when indices and futures markets around the world rise, this should be the first area you pay attention to as it should gain why rapidly. Of course, the converse is true as well if the markets around the world or falling.