Decline in GDT index weakens the Kiwi dollar.

The increase in the dairy prices coupled with a 10% rise in the price of the new wave of export commodities such as the kiwi fruit, Apple, seafood, and wine enabled the New Zealand dollar to strengthen from 0.6670 in May to 0.7484 in September.

The uncertainty in the Fed rate hike also assisted in bolstering the Kiwi dollar against the Greenback. However, the New Zealand dollar now seems to have lost steam due to a variety of reasons discussed below.

The dairy prices fell 3% to $2,880 per ton in the latest dairy auction conducted in the New Zealand.

Of the past four auctions conducted between August and September, three of them recorded more than 6% increase in the price. Most of the farmers require at least $3,000 per ton for breakeven. More than 95% of the New Zealand’s dairy produce, valued at about $10 billion, is exported. The dairy products account for 29% of the total export revenue of New Zealand.

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There was also a rumour that the ECB will cut short its monetary easing program. Even though, the ECB clarified that there is no such proposal, the rumour was more than enough to trigger the sell-off in the NZD/USD pair. Furthermore, the Reserve Bank of New Zealand is expected to cut the interest rates in November. The current benchmark interest rate of 2% is the highest among the developed economies.

Last Wednesday, the US Institute of Supply Management reported a growth in the non-manufacturing sector in September. Following the survey among the supply and purchasing executives, the organization reported a non-manufacturing PMI reading of 57.1, up from 51.4 in August and above the analysts’ estimates of 53.1.

A day later, the US Department of Labor reported a decline in the unemployment claims to 249,000, the lowest since 2000, in the week ended October 1. The reported claims were not only better than the analysts forecast of 255,000 but also lower than the previous week’s claims of 254,000. Thus, fundamentally, we can anticipate the NZD/USD pair to decline further. The NZD/USD pair has broken the lower band of the ascending channel at 0.7230.

Thus, we can expect the level of 0.7200 to 0.7250 to act as a firm resistance. The immediate support for the currency pair is at 0.7030. The MACD indicator has crossed below the zero line. Thus, we can anticipate the currency pair to test the support level at 0.7030.

Under these circumstances, taking a short position near 0.7180 seems to be the most practical decision. A stop loss order can be placed above 7.7250 to reduce speculation related risks. The short position can be covered at about 0.7030.

A one touch put option would be the best possible contract to go for, based on the technical and fundamental forecast made above. The target level for the contract can be as low as 0.7030. As usual, the put option contract should remain valid for at least four weeks.

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