The New Zealand Dollar has experienced its fair share of volatility in the past year. Looking at NZDUSD alone, it closed at 0.68847 on January 3rd and closed at 0.70857 on December 29th of 2017.
This marks a 20 pips gain, but, of course, this pair was much more volatile experiencing drastic whipsaws. I expect we will be seeing another major reversal in 2018 especially over on the NZDCAD pair.
A favored explanation for the New Zealand Dollar’s slip points to the general election where the Labour Party goes into government. One of Labour’s key missions is to re-negotiate the Trans-Pacific Partnership trade deal as well as tightening of employability in New Zealand.
New Zealand’s annual GDP growth rate has slowed by half in 2017. From experiencing a growth of 4.4% in mid-2016, it slowed down to 2.7% to mid-2017. 2018 will be a key year to see if the Labour Party can deliver its economic targets.
From a technical standpoint, I have been long NZDCAD since nearly the beginning of this year.
From a massive downtrend, we first see the indication that this pair has failed to break significantly lower. While still in a downtrend, it has become drastically weaker as lower lows formed do not mark anything significant. I actually entered this trade as price paused on the moving average cross-over signalling a potential trend change.
The Canadian dollar is expected to remain fundamentally weaker especially as we have been seeing mixed sentiments regarding Canada’s labor conditions. I personally foresee the longer term detriments of raising the minimum wage to $14 per hour. The Tim Horton’s backlash is a prime example of how Canadian corporations will be adapting to the higher wages and I would not be surprised to see other corporations following suit.
Stay tuned for a further update on this trade.