I stumbled across a trade I rather like the look of yesterday the New Zealand dollar vs the US dollar. I think I'm about to be a buyer of the former here's why.
Some background first. The New Zealand dollar (or Kiwi) like just about every dollar, divides into one hundred cents. It was introduced in 1967 to replace the pound at a rate of two dollars to one pound. Today there are still two dollars to a pound. How about that?
The New Zealand dollar is one of the ten most traded currencies in the world it always seems to be accounting for about 2% of global forex turnover. Given New Zealand's relatively small share of global GDP and its tiny population (4.7 million), that is quite an achievement.
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It might have something to do with the fact that, according to Transparency International's Corruption Perceptions Index, New Zealand is the most honest country on earth.
To establish some parameters here, we're looking at the Kiwi against the US dollar since shortly after the turn of the century. The chart below shows how many US dollars there are to a Kiwi. Currently one Kiwi dollar gets you 66 US cents.
When the chart goes up the Kiwi is strong. When it goes down the US dollar is strong.
Peak Kiwi strength came in 2011 and then again in 2014 at around US$0.88. Peak Kiwi weakness came during the global financial crisis in early 2009 at just below US$0.50.
I've also highlighted in red what looks like a double bottom stretching between 2015 and the summer of this year at US$0.62.
With that low in mind, let's zoom into a more recent two-year weekly chart. In addition, I've drawn the six- and 21-week exponential moving averages (EMAs) which show the average price of the past six (red line) and 21 (blue line) weeks, with greater weight given to more recent weeks.
The sell signal occurs when the red line crosses down through the blue, both are sloping down, and the price is below. The buy signal occurs when the red line crosses up through the blue, both are sloping up, and the price is above.
I've marked both the buy and the sell signals.
And you can see we are about to get a buy signal, assuming the Kiwi dollar doesn't capitulate over the next few days.
What excites me about this buy signal is that it is coming off the back of that double bottom I identified in the first chart above. My feeling is that we are going to get a run to the US$0.73 area, where there will be resistance. We might get there by early next year.
In the longer term, we might even get back into the US$0.80s. Donald Trump is agitating for a weaker dollar after all. He might actually get his way.
Dominic's new book Daylight Robbery: How Tax Shaped Our Past And Will Change Our Future, published by Penguin Business, is available at Amazon and all good bookshops. Audiobook at Audible.co.uk. Signed copies are available at dominicfrisby.com
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
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