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  • NZD/USD   is currently trading at 0.6581 having made a high of 0.6595 and a low of 0.6567 in a calmer display of pice action while the market takes a breather from some heavy volatility since Friday’s dramatic run on the Lira and subsequent volatility  in financial markets.  
  • NZD/USD was stabilising after reaching a low of 0.6560 on the Turkey currency crisis in NY closing on Friday and has been consolidating between there and 0.6594 while capped by the descending 50-hr SMA at 0.6589 albeit remaining vulnerable to escalations.

The bird has  been consolidating between there and 0.6594 while capped by the descending 50-hr SMA at 0.6589 albeit remaining vulnerable to escalations,  be it of the feud between President Tayyip Erdogan and Trump or dealer’s and investor concerns over the state of Turkey’s financial and economic affairs, indebted to foreign creditors while the currency and many other EM-FX prices goe into orbit.  

While the country is somewhat tied into the Emerging Market trade risks and China, there are far less Kiwi’s in circulation than there Australians dollars, so by the sheer size and world ranking of Australia’s economy (12th) in comparison to New Zealand’s (54th),  the bird is usually trading on the heels of movements in the Aussie as a more direct proxy than its Kiwi neighbour – (AUD/JPY is a good place to take a lead from in these market conditions and so would be NZD/JPY for that matter) – and so goes the theory anyway.  However, there was less stability in the Aussie on Friday’s volatility than there was in the Kiwi which fell just 46 pips from 0.6618 to 0.6572 in comparison to the Aussie’s fall from 0.7369 to 0.7280 – about 90 pips.  

NZD/USD subject to risks of a full-blown Asia crisis – remembering  Thailand and Russia’s capital controls of 1997 and 1998

However, China, is, of course, New Zealand’s largest trading partner and China, as being the largest emerging market is counting on what happens in Asia and should there be much further pessimism on how this Turkish Lira crisis will pan out, then markets will remember that Asia has been here once before, mired in a broad-based financial crisis two decades ago when in 1997, the Indonesian rupiah crashed at the same time that the nation’s debt-to-GDP ratio soared to 170 percent.

However, the real contagion in today’s currency crisis is what measures Turkey will now take and whether or not fellow economies, experiencing similar events their own banking systems and fearing a run on their currencies and assets will follow in tow – capital control measures and a shortfall of US dollars is what investors should be fearing the most. However, at this stage, ErdoÄŸan has denied that there will be any capital controls put into place – but it sounds all too familiar when comparing the crisis that Russia and Thailand threw the world into during 1997 and 1998 – Another option that ErdoÄŸan has is to negotiate with the IMF – but the U.S. and its Western allies, especially Germany, have effective veto power over IMF bailouts and any conditions that the US put over how Turkey is bailed out would likely be rejected by a stubborn ErdoÄŸan leading to an impasse on the subject of IMF aid.

“While the NZD hasn’t retested the lows from late last week, nervous markets are keeping it on the defensive. Domestic developments are still relevant, but global factors now hold a far greater sway over near-term direction.”

Analysts at ANZ argued.  

NZD/USD levels

Support is seen at 0.6510 and resistance at 0.6670. 0.6510/50 that guards a run to the 0.6470s. 0.6240 is a big level that guards space down to double bottom lows at 0.5910 (2004 and 2006 levels). On the flipside, the Key resistance is 0.6670 and then, on the wide,  0.6860.  Should bulls manage a breakthrough recent highs and the top of the channel, there with daily closes, 0.6920 as the June high comes as a key level. The 200-month moving average resistance is at 0.7020.