Today’s kiwi selloff ignored the 25 basis point rate hike to 3.5% and was spurred by the RBNZ statement. The statement was extremely dovish and triggered the collapse which was already set in place by the longer-term double top pattern from earlier this month to the August 2011 high of .8841. The Bank signaled that rate hikes will likely pause and that the current kiwi levels are unstainable and unjustifiable. Almost a 100 pip decline with NZD/USD occurred in 10 minutes following the statement.
A bearish stance targeting a several hundred pip drop may not be the best trade in this case since the fundamental backdrop could support a firm kiwi with a higher CPI, strong economic data still benefiting from China, and the ever so important interest rate differential trade.
The weekly chart above shows the important double-top formation that occurred earlier this month along with a bearish ABCD pattern. The turquoise box shows my forecast range for the remainder of the year (.8250 and .8675). While the RBNZ will continue throwing out dovish comments, the kiwi may remain fairly supported around .8400.
The trade: Sell NZDUSD at .8600 with a stop loss at .8650 and a take profit at .8510. The Risk/Reward Ratio is a just under 1:2.
Edward J. Moya
WorldWideMarkets Online Trading