Kiwi to Approach Record After Brief Retreat: Technical Analysis

New Zealand’s dollar will approach a record high set in August 2011 after briefly retreating amid signs that recent gains have been excessive, CMC Markets said.

The kiwi may test 88.43 U.S. cents, the strongest level since it was freely floated in 1985, should the Reserve Bank tighten monetary policy further after it raised the official cash rate by a quarter percentage point on March 13, said Desmond Chua, an analyst at CMC Markets in Singapore.

In the short term, the New Zealand dollar may decline 2.5 percent from today’s level, Chua said, after its 14-day relative-strength index reached 77 yesterday, signaling the currency’s 6.9 percent jump since Feb. 4 was too rapid.

“More tightening should support the kiwi dollar, but given the recent strength, it might be due for some near-term correction,” Chua said in a telephone interview. “The 84 U.S. cent level was a key resistance level for at least six months. That will now turn support.”

The kiwi touched an 11-month high of 86.40 U.S. cents yesterday after the Reserve Bank of New Zealand became the first central bank of a developed nation to exit record-low borrowing costs last week. The currency declined 0.2 percent to 86.09 at 6:15 p.m. in Wellington from yesterday.

The kiwi has breached the upper envelope of its Bollinger band with the greenback on eight of the 10 days to yesterday. After the currency stayed above the range for three consecutive days in January, it slipped 4.5 percent over two weeks to an almost five-month low of 80.52 U.S. cents on Feb. 4. Daily stochastics also suggest a retracement.

Hedge funds and other large speculators increased bullish bets on the kiwi to the highest in almost 10 months last week, with wagers or further gains outstripping those on declines by 14,449 positions, according to figures from the Washington-based Commodity Futures Trading Commission.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

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