NZD trading

C

cstfx

I'm a big fan of trading the Aussie and Kiwi for the past year since their movement seems to reflect the action with the S&P and Dow, not exactly, but enough to pay attention.

US equities may have hit bottom, may not, but I think NZD has run its course mid-term. News coming out of NZ has been negative of late with fears of the NZ economy getting soft and the effect of the global credit crisis reaching all the way over there.

Currently they have a 8.5% fed rate vs US 2.25%, so their dollar is more attractive as a carry trade, but i think that will lessen, if not already started. With a weakening economy, they will be lowering interest rates in short order, thus reversing the rate imbalance that favored holding kiwi vs USD.

That being said, and viewing the recent top around 8200 as a ceiling, taken a large short here at 8040. Target 7500 by end of April. generally don't like holding long term, especially with the interest that will be paid, but I believe it will hit that target (or damn near close). I will adjust downward target if it accelerates into target, but right now looking for 500 pips in 30-40 days. I will try to hedge a bit with Aussie (tend to follow similar paths) and options, but viewing it as pretty much a straight-up directional trade.

Short
NZD/USD - 8040
Target - 7500
Stop - open
 
Good luck, I will be following your thread with interest.

Fundamentally, I think NZ will be the first to go. Confidence is dreadful, the trade balance is negative and the currency has just been eating out of what little exports they've had (minus commods). Australia will follow eventually, but I think they're a bit stronger on the commodity exports (metals, etc) and they'll hold so long as commodity prices hold. When they go down, the Aussie will collapse.

As will the Loonie.
 
Does anyone know how to trade:

1. Bonds for Aussie and NZ.
2. Trade options on Aussie and NZ equities markets with 100 share contracts.

I have heard that there are also something called the spread bucketshops. Also let me know about these (although i do not like the idea of bettting).

Thanks
 
Quote from riskfreetrading:

Does anyone know how to trade:

1. Bonds for Aussie and NZ.
2. Trade options on Aussie and NZ equities markets with 100 share contracts.

I have heard that there are also something called the spread bucketshops. Also let me know about these (although i do not like the idea of bettting).

Thanks
More...

IB has AUD and NZD FX trading, and has the options on Australian stocks. The ASX listed options are 1,000 share contracts though not 100.

Regarding the bucketshops, I think you are referring to the CFD providers. These have taken off in Australia in a similar way to the UK - and many of the service providers are the same. I don't think there are any listed stock options in New Zealand.
 
Quote from cstfx:

Currently they have a 8.5% fed rate vs US 2.25%, so their dollar is more attractive as a carry trade, but i think that will lessen, if not already started. With a weakening economy, they will be lowering interest rates in short order, thus reversing the rate imbalance that favored holding kiwi vs USD.
More...

I think it is important to bear in mind that essentially the only mandate of the Reserve Bank of New Zealand is to maintain price stability - ie control inflation. Unlike the Federal Reserve, the RBNZ is not compelled to prop up low business confidence. I believe the perceived value of the carry trade will depend more on what tax cuts are expected next year. Tax cuts always result in higher inflation, thus any proposed tax cuts reduce the likelihood of rate cuts. The level of tax cuts will depend on the outcome of this years election. There have been many reports suggesting that official cash rates won't be cut by the RBNZ until next year.

Accordingly it seems that the NZD/USD rate will in the short term depend more on the overall value of the USD rather than actual weakness in NZD. Having said that though, I do think that your TP is achievable as it appears to be within range of recent volatility. I just don't think it would be indicative of a long term trend.
 
Update:

About 20% of the way to my goal.

Generally I don't hold much overnight. So I am taken aback a bit by the amount of interest charged going short NZD vs USD ( for anyone unfamiliar, NZ rates are 8.25 - not 8.5 in OP - and USD is 2.25) I knew there would be some, just didn't think that much. I've been able to offset that with some options

Looks like a double top was put in place at around 8200 so I think upside is limited from my entry point. Looking at the chart, however, I don't think my target will get hit in my allotted time frame as 7500 represents a near 50% Fib re-tracement of Aug 2007 lows. Plus USD still vulnerable to another possible rate cut in Apr.
 

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Ever play the ratio of NZD to AUD? NZD has dropped realtive to AUD in the last few months. Over the last 5 years if the ratio gets too out of whack it regresses back. What about a long NZD/short AUD right now? Any reason for NZD to stay undervalued realtive to AUD?
 
Quote from FCostella:

Ever play the ratio of NZD to AUD? NZD has dropped realtive to AUD in the last few months. Over the last 5 years if the ratio gets too out of whack it regresses back. What about a long NZD/short AUD right now? Any reason for NZD to stay undervalued realtive to AUD?
More...

Both economies are still benefiting from high commodity prices - although for Aus, gold prices seem to be on the decline. The stockmarket indices for both countries appear to be in similar states. Both central banks have kept interest rates the same in their last announcements.

So maybe the RBNZ just seemed more dovish than the RBA?
 
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