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FxWirePro: Sell Aussie against Kiwi targeting parity test

After making a top last year in October, the Australian dollar has been declining steadily against the New Zealand dollar. Aussie declined from as high as 1.129 against the Kiwi dollar in October to 1.076 as of today. The brewing political crisis in Australia involving dual nationality of members of the parliament, sex scandals involving Australia’s Deputy Prime Minister Barnaby Joyce have taken a toll on the Australian dollar. In addition to that, while the economic growth improved but consumption has been weak due to a much weaker wage growth over the years since 2011 has also played its part in weakening the Aussie.

On the other hand, New Zealand dollar benefited from RBNZ governor change. The Chief executive of New Zealand superannuation fund is set to take charge on 27th March. Recent PMI reports; Manufacturing at 55.6 and Services at 55.8 also points to a robust domestic economy. In addition to that, higher agricultural products price this year is benefiting the kiwi dollar.

Trade idea:

Our calculations suggest that while the Aussie has declined more than 500 pips since October, further decline is likely. We would recommend selling the Aussie against the Kiwi at the current rate of 1.076 and at rallies of every 75 pips with a target of parity test against the Kiwi Dollar.

The stop loss for this trade should be maintained at 1.108 area which is 320 pips from the current price.

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