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Why is NZD so strong??

  • #41
  • Jun 22, 2007 8:25am Jun 22, 2007 8:25am
Quoting rbock
I do have to say I find it strange that NZ keeps raising their interest rate while at the same time trying to force their currency down. I'm not sure I follow that thinking.
That is a very good point. I'm very new at all this econ shizit and don't understand much. But what you said is clear and basic enough for me to have to wonder, "what is really going on with this?"

On the other hand, I am experienced enough to know that it can keep right on going up. I was a newbie stockbroker in the late 80's and clearly remember fearing and remarking that the Dow just couldn't stay up so high, there was just nothing holding it way up at 3800! Of course, the '87 dip was still fresh in my mind.
  • #42
  • Jun 22, 2007 2:27pm Jun 22, 2007 2:27pm
Looks like the Central Bank is stepping in again. Produced a 50 pips range 1min candle in NZDUSD @ 19:16 GMT
  • #43
  • Jun 22, 2007 2:32pm Jun 22, 2007 2:32pm
Quoting cesarnc
Looks like the Central Bank is stepping in again. Produced a 50 pips range 1min candle in NZDUSD @ 19:16 GMT
Yeah, pretty impressive drop and all the predictions about NZD were spot on.
  • #44
  • Jun 22, 2007 2:45pm Jun 22, 2007 2:45pm
10 pips in the pocket just for the fun... Broker about to close, I'm not going blind on this devil
  • #45
  • Jun 22, 2007 2:55pm Jun 22, 2007 2:55pm
Interesting the bank intervened today. Too bad I was in the shower when it happened. Oh well. Be curious to see what happens with it between now & tuesday when trade balance comes out.
  • #46
  • Jun 22, 2007 2:57pm Jun 22, 2007 2:57pm
  •  Trader#0000
  • | Status: Unregistered Trader
After each intervention of the Central Bank I guess new buyers are emerging because everybody is buying the dips. So I guess in the long term the Central Bank is making the NZD stronger even if it is trying to make it weaker.
  • #47
  • Jun 22, 2007 3:00pm Jun 22, 2007 3:00pm
Quoting blueruby
On the other hand, I am experienced enough to know that it can keep right on going up. I was a newbie stockbroker in the late 80's and clearly remember fearing and remarking that the Dow just couldn't stay up so high, there was just nothing holding it way up at 3800! Of course, the '87 dip was still fresh in my mind.
I agree It can keep going up & up. I think alot will depend on next weeks news. That's okay. I can wait. There are other pairs to trade while I wait for this one. This thing has to be so bought up by now, just like a sponge and when it rings out, Hopefully I will be there with a bucket.
  • #48
  • Jun 22, 2007 3:03pm Jun 22, 2007 3:03pm
Quoting ForexTester
After each intervention of the Central Bank I guess new buyers are emerging because everybody is buying the dips. So I guess in the long term the Central Bank is making the NZD stronger even if it is trying to make it weaker.
I agree it is strange. Why keep raising rates then try to force your currency down & then have everyone buy dips? I admit I don't understand what they are trying to do other than maybe keep it at a cap. New Zealand industry can't be happy about it i would think.
  • #49
  • Jun 22, 2007 5:46pm Jun 22, 2007 5:46pm
I would assume that when they raise rates, they take into account an expected raise in the value of the Kiwi. As long aa the rate of growth in the exchange rate stays within their predicted limits, they're happy.

However if everybody jumps on the bandwagon, the rate of growth of the currency value rapidly exceeds the exponential, and starts feeding on itself the same way any bubble does. If it stays that way for any length of time, it becomes wildly unpredictable - any small spark of fear (such as lowering the rates by a small amount) in the market can cause a catastrophic collapse.

The best way around this is simply to add a little friction into the equation; like putting speedbumps on a road. It's actually relatively cheap - since they just have to increase the variance (volatility) a bit; after they've intervened by quickly shorting the ccy in one way or another, they can leisurely buy it back.

It helps if they do the best they can to make their immediate targets unknown, taking one intervention to 1/2 percent, maybe another to 1%. The important thing is to make it mildly unpredictable both in timing and amount.

It also helps that they are probably running the same numerical models as the big players in the market - since then they can more precisely estimate the effect of an intervention (and save their ammunition). Someone speculating on the ccy OTOH, can only use a guesstimate of when and when such an intervention may occur, and how bad it will be, and thus has to play much more conservatively for a given risk tolerance

Of course I have to add that - having some NZ friends - it's much more likely they are in truth sitting back with a beer, throwing a dart at a board to pick the next intervention, and having a good laugh at some overeager hedge fund's untimely demise
  • #50
  • Jun 22, 2007 8:09pm Jun 22, 2007 8:09pm
  •  iya
  • | Joined Oct 2006 | Status: always protect yourself | 129 Posts
Quoting HalifaxCB
The important thing is to make it mildly unpredictable both in timing and amount.
I think I've figured their timing out: they attack the Japanese housewifes in their sleep! :surprised
  • #51
  • Jun 22, 2007 8:53pm Jun 22, 2007 8:53pm
If you need more indepth knowledge on things to do with the NZ economy and the NZ dollar try this website which is pretty much dedicated to the kiwi.

http://www.fxmatters.co.nz/

Regards
  • #52
  • Edited 11:51pm Jun 22, 2007 11:06pm | Edited 11:51pm
What will be in store for the NZ economy if the RBNZ fails to devalue the kiwi? Will the reduced exports lead to lower inflation? Or will things burn up worse?
  • #53
  • Jun 22, 2007 11:47pm Jun 22, 2007 11:47pm
NZ Export is mostly Dairy Products. And it was reported that the farming economy (dairy included), has been raising prices driving the inflation and exports up and up.

So, with that in mind, Trade Balance *should* be NZD Positive.

Dont take my word for it though; im personally short NZD .
  • #54
  • Jun 23, 2007 8:01am Jun 23, 2007 8:01am
OK, so the bank has a good deal of control over price of the kiwi. They're shorting.

If they have the megabucks (megakiwis?) to be in control, and they're shorting and keeping the price down, then what should we do?

Take your time, it's not a trick question.

(Is anything in Forex not a trick question?)

Do they really care how strong the kiwi is? If that's really their concern, then their actions don't make sense, as we all agree. Therefore it's not what they're doing.

When the bubble bursts, they will buy back after the panic, and cash in. The bank is just looking to make money, like all the rest of us.

Thanks, Halifax, your post brought me to this line of thinking.
  • #55
  • Jun 23, 2007 8:54pm Jun 23, 2007 8:54pm
You're welcome, blueruby.
One or two points though - usually the CB's have a mandate along the lines of keeping the money of the country stable and the maintaining monetary conditions to support an effective economy; heads don't get lopped off if they lose some money - but if the economy becomes unglued its a different story....
As for the actual level of the ccy with respect to other ccy's, that's not as important (in the long run) as things like Purchasing Power Parity (PPP) and the Real Effective Exchange Rate (REER) (http://www.investopedia.com/terms/r/reer.asp for an explanation), and basic stability without which it is very difficult to conduct international trade. Foreign exchange is only considered important in itself when changes become too fast and threaten to destabilize the rest of the economy.

The effects of what can happen when banks aren't paying attention can be found in events like the 1997 Asian Currency Crisis - which makes interesting bedtime reading - for example: http://en.wikipedia.org/wiki/Asian_financial_crisis
Cheers....
  • #56
  • Jun 24, 2007 11:05am Jun 24, 2007 11:05am
I'll wake up early to harvest some PIPS on NZD

any drop below 0.7550 would be a GOODDDDDDDDDDD buy
  • #57
  • Jun 24, 2007 4:52pm Jun 24, 2007 4:52pm
Recent story repeats, we can make a buck

17:49 No sign of the RBNZ so far today. They have intervened the last two Mondays in a row.
  • #58
  • Jun 24, 2007 5:11pm Jun 24, 2007 5:11pm
Quoting cesarnc
Recent story repeats, we can make a buck

17:49 No sign of the RBNZ so far today. They have intervened the last two Mondays in a row.
Sell stop 7630, SL 7645, TP 7555, expires 06:00 GMT, just in case
  • #59
  • Jun 24, 2007 5:46pm Jun 24, 2007 5:46pm
Will we see another RBNZ Intervention today?

RBNZ already intervened last Friday afternoon (Saturday NZ time). It was not as successfull as RBNZ had hoped for.

Japanese vs RBNZ

He who has the most ammo (cash) wins this fight. RBNZ is foreseen low on ammo; if they really want to drive NZD down, they should sell, sell, sell and sell forcing NZDUSD to drop 200~300 pips in an hour - this would REALLY scare off those NZD buyers to the point that they would short it themselves. However, what RBNZ is doing is merely selling a few millions to drop NZDUSD down by 50 pips attractive enough for dip buyers to re-enter.

If you are shorting this pair, be prepared for a roller coaster ride. BTW. NZDUSD is almost 7660s. If you short it with small SL, you just donated money to the broker. I shorted it with no SL. Will short this one again at 0.7680 (I missed that intervention move last Friday). I know I can get my account wiped out with no SL (however im not risking more than 10% on this deal though). But knowing RBNZ and the whole NZ economy on my side, its only a matter of time NZDUSD would drop. This is not a 1-2 day fight; its a long term war.
  • #60
  • Edited 6:31pm Jun 24, 2007 6:18pm | Edited 6:31pm
Quoting BurgerKing
Will we see another RBNZ Intervention today?

RBNZ already intervened last Friday afternoon (Saturday NZ time). It was not as successfull as RBNZ had hoped for.

Japanese vs RBNZ

He who has the most ammo (cash) wins this fight. RBNZ is foreseen low on ammo; if they really want to drive NZD down, they should sell, sell, sell and sell forcing NZDUSD to drop 200~300 pips in an hour - this would REALLY scare off those NZD buyers to the point that they would short it themselves. However, what RBNZ is doing is merely selling a few millions to drop NZDUSD down by 50 pips attractive enough for dip buyers to re-enter.

If you are shorting this pair, be prepared for a roller coaster ride. BTW. NZDUSD is almost 7660s. If you short it with small SL, you just donated money to the broker. I shorted it with no SL. Will short this one again at 0.7680 (I missed that intervention move last Friday). I know I can get my account wiped out with no SL (however im not risking more than 10% on this deal though). But knowing RBNZ and the whole NZ economy on my side, its only a matter of time NZDUSD would drop. This is not a 1-2 day fight; its a long term war.
I decided to go as I stated above. Interventions usually comes with 100 pips. I'm skipping the waiting. I'm going to the real deal if (when) the intervention comes... Will lift the sell stop every 50 pips NZDUSD goes up and place a small SL.

This is not sophisticated fundamental or technical trading. I'm positioning just as the rat waiting for the cheese to fall off the table
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