Kiwi fundamentals puzzle NZD – offers best swing trading opportunities in NZD/USD

We think kiwi dollar to resume its downswings but trend seems puzzling owing to a mixed bag of fundamentals. A sharp drop in car registration fees is expected to take annual inflation down to a new low for this cycle. We expect the weaker New Zealand dollar to have had only a modest impact on prices to date.

On the contrary fundamental reasons as to why Kiwi dollar shows strength against dollar is that Fonterra's diary products being improved from previous numbers, upbeat manufacturing numbers of China (manufacturing PMI increased from previous flash of 47.0 to the current flash at 47.2).

Australia and New Zealand are the two pacific countries that have huge trade exposure with China. We predict Chinese slowdown may certainly impact adversely on NZD in future though short term gains are on the cards.

Although, bullish sentiments are seen in short run medium term and over the longer horizon we still project NZD/USD to weaken as NZ/US monetary policy diverges. While the RBNZ is particularly sensitive to NZD now, a recovery in export prices (and the terms of trade) would reduce the central bank's sensitivity to the currency. Until then the risks are skewed towards further NZD weakness.