Kiwi to Challenge its High in Early November
By Jonathan Clark
We have been maintaining that the commodity currencies formed a major peak in early November and are headed lower into the second quarter of next year, but now it appears our analysis is wrong. Although interest rates were rising in the US versus most other countries and this was negative for the currencies, commodity prices have continued to trend strongly higher. The recent strength in the commodity currencies during the past two weeks makes it appear that significant lows were seen in the New Zealand and Canadian dollars at the start of last week. The Australian dollar has been trending strongly higher for nearly a month as interest rates in Australia have edged higher versus the US and the currency is threatening to break into 18-year highs, while the Canadian dollar is close to 30-month highs. New Zealand interest rates have stabilized versus the US. It now appears the commodity currencies are headed higher into early February and this strength could last as long as the middle of March.
Commodity currencies occupy the top three rankings in terms of strength since the low in early March of 2009 with gains of approximately ZAR â€“ 60%, AUD â€“ 59% and NZD â€“ 53%. The Kiwi has only lost ground against the Aussie during the past five months and before that was vying for the lead. The cycles argue AUD/NZD formed a significant peak just ahead of the Christmas holiday and began a downtrend lasting two to three months. ZAR/NZD is giving is a similar reading and this makes the Kiwi appear to be the best of the three currencies to own for this expected upmove during the next 6 to 12 weeks.
The New Zealand dollar formed a significant low at the start of last week. There is an intermediate peak due during the week of January 10 and should rally to .7775 before pulling back for a week. The Kiwi should then resume its uptrend into early February and there is a chance this overall strength can last as long as the middle of March before a major peak is reached. Our objective for the upmove is the .7950 area and following this peak the Kiwi should turn lower and decline into May and probably into the third quarter of next year. Only a close below the strong support at .7395 will immediately turn the outlook negative, but the next downmove should be postponed.
~ FX Concepts