The New Zealand dollar’s worst drop since the global financial crisis may have bottomed out for now after tumbling dairy prices helped drive a 16 percent depreciation this year, according to CMC Markets.
The six-year low at 64.99 U.S. cents touched on July 16 looks to be the head of an inverse head-and-shoulders pattern, opening up the chances for a rebound to around 69.50 cents, said Ric Spooner, chief analyst at CMC Markets in Sydney. The 65-cent level has additional strength as a support because it completes a leg lower that’s symmetrical with the decline from April’s high to the June 5 low, he said.
“It’s been playing perfectly out of the chartist’s textbook in recent weeks, and often when markets get into that situation, they continue to behave in a very well-ordered fashion,” Spooner said. “The chart outlook suggests that kiwi is primed for a significant rally if it gets any bullish news -- or even if more bearish news fails to materialize.”
The kiwi dollar bought 65.63 cents as of 10:22 a.m. Tuesday in Tokyo, down 16 percent from 77.97 cents on Dec. 31, the biggest decline among developed-market currencies.
If the currency gathers enough momentum to push above the June 5 low of 70.25 cents, there’s the potential for an unwind of the entire drop from 77.44 cents since April, he said.
New Zealand’s kiwi dollar plunged as much as 26 percent since it reached a three-year high of 88.36 cents in July of last year, the steepest drop since a 40 percent tumble in the 12 months to March 2009.
The nation’s Reserve Bank cut its benchmark interest rate in June and July and signaled more cuts are likely as tumbling dairy prices slow the economy. Governor Graeme Wheeler said last month “a more substantial” weakening in the currency is necessary.
GlobalDairyTrade holds an auction Tuesday, as the average price across products has slid 38 percent from this year’s peak in March. New Zealand supplies about two-thirds of all whole milk powder exported internationally.
CMC’s Spooner says Wheeler is likely to get the currency declines he is seeking in the longer term, with the expected technical rally vulnerable to a reversal because of the economy’s fundamental weakness.
“If this does turn out to be a bottom, I’d see it as temporary,” he said.