From the desk of Tom Bruni @BruniCharting
If you look at a list of the best-performing stock markets in the world this year and over the last few, you’ll see New Zealand towards the top of that list in both local currency and US Dollar terms.
With that said, today’s Chart of The Week is focused on another New Zealand chart that’s NOT equities.
Don’t worry, we’ll talk equities too for you non-currency traders.
Here’s a weekly chart of the New Zealand Dollar/US Dollar pair breaking back above support at 0.64, confirming both a bullish momentum divergence and a failed breakdown. This type of setup presents a really well-defined risk/reward opportunity, and if you look at the last 5 years of trading as a massive trading range, then there’s potential for this pair to move back towards 0.735 over the next year or two.
Click on chart to enlarge view.
Now I know what you are thinking…Bruni, I don’t trade currencies why the hell should I care about this New Zealand Dollar?
Well, looking at the New Zealand ETF (ENZL) making new all-time highs just this week. From a correlation perspective, ENZL tends to move in tandem with the New Zealand Dollar/US Dollar pair so if this market has been able to outperform in the face of a falling currency, that’s a sign of great relative strength in our opinion and a strengthening currency should serve as a tailwind for further equity strength going forward.
In conclusion, this failed breakdown in NZD/USD looks like the real deal. As long as prices are above 0.64 on a weekly closing basis then we can be long with a multi-year target of 0.735. If you want to give it more room I think you can own it even against the recent weekly opening/closing low of 0.625.
From an equity perspective, there is a strong positive correlation between NZD/USD and ENZL, so if you’re in New Zealand stocks then this should serve as a longer-term tailwind. If you’re not, then any weakness towards 51.50 can be bought as our longer-term target remains above 64.
Thanks for reading and please let us know if you have any questions!