Bears Plunder the Currencies Down Under!
Two of the favorite high-yielding currencies for traders putting on so called “carry trades” – the Australian Dollar and the New Zealand Dollar – have been hit hard of late, with the “Aussie” falling to lows not seen since May and the “Kiwi” dropping to levels last seen in April. The sharp declines have resulted from traders becoming more risk averse and looking for liquidity, as the subprime loan situation has spread outside of the U.S. The current 8.25% short-term rate in New Zealand and 6.50% rate in Australia have made these currencies favorites of large speculators and hedge funds as they borrow funds in low-yielding currencies such as the Japanese Yen (0.5% rate) and the Swiss Franc (2.50%) and invest in higher-yielding assets such as the “Aussie” and “Kiwi.” Now that these trades are being offset, the high-yielding currencies are being hit hard. If that weren’t enough, retail sales dropped for the second consecutive month in New Zealand, which has also put pressure on the currency, and business confidence in Australia was also weaker than expected last month, adding to “Aussie” woes.
Looking at the weekly chart for the New Zealand Dollar, we notice how quickly and sharply the market fell one the 20-week moving average was penetrated on a weekly closing basis. Just this week alone, “Kiwi” futures have lost 300 points, as sell stops are hit and liquidation selling continues. The next major support point is coming into view, with the 50-week moving average at 0.7070 being widely watched by technical traders. The 14-period RSI is hovering just above oversold levels with a reading of 30.12. Should the 0.7070 level fail t hold, the next major support point is seen at the March lows of 0.6722. Resistance is now seen at the May lows of 0.7230. In early trade, the September New Zealand Dollar is trading at 0.7134, down 0.0119, and the September Australian Dollar is trading at 0.8220, down 0.0120.
Mike Zarembski, Senior Futures Analyst
