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NZ dollar still locked in a downtrend

16 Jun 2010 12:53Peter Waring

The S&P500 has been rallying the past 2 days and yet despite the rate rise from the central bank the NZD has been unable to rally past the 70c mark and hold its ground. As I wrote in my previous articles, the NZD broke its correlation with the US stock market last October (2009) and then since then has been stuck in a volatile downwards sloping channel.

The NZ dollar is still stuck in its downwards trending channel with the upper channel line presently at around 71c to the USD. The NZ dollar would have to break above 71c and hold there to break this pattern. While NZ has always had higher interest rates than the USA, the NZD is not as strongly correlated to the relative interest rate differential between the US and NZ as most people believe. What is more important is the relative economic performance between these two countries.

NZD Stuck in a Downtrend

NZD Stuck in a Downtrend

Right now the US economy is rebounding strongly, however the NZ economy is showing mixed signals. Wheras on the one hand commodity prices are high, on the other, the housing market is falling and the consumer is deleveraging which is dragging on the NZ economy.

Click here to see a full version of this article with graphs.

Peter Waring
www.marketsunplugged.com
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