Market News & Analysis


Top Story

Whether It Breaks Or Reverts To This Year’s Trend, 0.8500 Is Key For NZD/CAD

Just as NZD/CAD tests a key level of resistance, it’s worth considering its potential for a change of trend. Personally, I think the bearish trend on NZD/CAD has been one of the better ones for FX traders this year. Since failing to break a key resistance level in March, the commodity FX cross tumbled over 11% (or over 1000 pips) within a relatively clean downtrend.

Yet having tested the upper bounds of it bearish channel on the daily chart, NZD/CAD has approached an inflection point and there are compelling arguments for both bulls and bears to consider.


Bearish swing traders could take comfort in the following:

  • Price action remains within the bearish channel projected from the March peak, and the 100-day eMA is also capping as resistance.
  • Timing wise, yesterday’s high is eerily similar distance from its prior leak; the first spanned 85 days and yesterday’s spanned 82 days.
  • Whilst prices have recovered nearly 3% from this year’s low, the overlapping nature if price swings suggest the rebound is corrective, so poised to turn lower once more.
  • BoC have rates at a ‘whopping’ 1.75% compared with RBNZ’s 1.0%, which provides Canada a positive yield differential with New Zealand.


Contrarians (bulls in this instance) could take note of the following:

  • Net-short exposure on NZD futures remains near a historical extreme. The 3-year Z-score is around -3.5 standard deviations and the 1-year was recently below -2 SD, level which have been associated with a short squeeze historically. Ultimately, NZD could be vulnerable to short covering (as seen yesterday) if data improves and / or RBNZ are less dovish.
  • Whilst differentials currently favour CAD, markets will respond if they suspect this differential will narrow which would be positive for NZD/CAD. And as it’s possible RBNZ will hold at 1% so, if CAD data weakens, then it could well send NZD/CAD higher.  
  • The CA2-NZ2 year differential is on the cusp of braking its bearish trendline.
  • Yes, prices have stalled near a cluster of resistance. Yet if these levels are to be broken it could trigger stops and exacerbate a bullish follow through.



Given the importance of 0.8500 resistance, NZD/CAD could well turn lower over the near-term. Yet due to the strength of momentum leading into resistance, an eventual upside break is the bias whilst prices hold above the 0.8347/63 lows. Also take note of the rounding bottom forming which, if successful, projects an approximate target around 0.8770.

  • Bears could look to fade into moves below the trendline and / or 0.8500 resistance
  • Bulls could wait for a break above 0.8500 to confirm the rounding bottom and target the 0.8700 highs (although target projects 0.8770)
  • Alternatively, for those who like to scale in, bulls could look for dips above the 0.83470/36 lows in anticipation of a breakout


Related analysis:
The Aussie Tanks on Weak Employment Report | AUD/USD
RBNZ Hold Rate And Refrain From A Dovish Meeting – Is the Low in? | AUD/NZD
RBA Discussed Keeping Cuts For A Rainy Day | AUD/EUR, AUD/NZD
AUD Firmer On Lower Unemployment | AUD/JPY, AUD/NZD, EUR/AUD

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.