HiFX's Dan Bell looks at the NZ$'s dip below 81 USc and the risks it may fall further as the Northern Hemisphere returns from summer holidays next month

By Bernard Hickey

Here's my weekly currencies review and outlook with HiFX's Senior Dealer Dan Bell, including a look at the New Zealand dollar's dip from its highs last week as traders slip back into a holding pattern with many investors  on summer holidays in the Northern Hemisphere or watching the Olympics.

The New Zealand dollar has been on a sutained uptrend since the beginning of June when it bottomed out around 75 USc and reached a four month high of 82.2 USc last week.

"Considering we've had quite a steep uptrend in the Kiwi, it was likely we were going to see a bit of profit-taking," Bell said of the dip from over 82 USc to under 81 USc on Tuesday afternoon.

He saw support around 80.8 US cents, with a weekly close under that level suggesting the uptrend was over.

"Right now, I think there is a lot more downside risk than upside potential. We haven't seen a lot of good news. On a relative basis the New Zealand dollar just looks a little bit more attractive than these other global countries where central banks are still printing money and lowering interest rates," Bell said.

Currency traders were in a wait and see mode until the bigger players get back from their summer holidays at the beginning of September.

They may return and question the recent strength of US stocks and risk-sensitive currencies such as the Australian and New Zealand dollars, Bell said, pointing to last Friday's very weak Chinese trade figures.

"Their exports are significantly down and these were one of the worst set of numbers in a few years," he said.

"If there's no global demand then China can't export."

Euro-zone GDP figures due on Tuesday evening were expected to show the region in a technical recession, while US growth figures remained very weak.

"In this environment it's difficiult to justifiy to see how we can justify a rally in risk assets when things continue to be pretty average," Bell said.

Australian intervention talk

The Reserve Bank of Australia's monetary policy decision minutes released last week included an improved growth forecast, but also pointed to the high Australian dollar's effect on the domestic economy.

"Maybe some of the policy makers are thinking the high Aussie dollar is a real concern, and perhaps they might think of doing something unconventional like some of these other countries have been doing for the last few years to bring down their currency down and stabilise their economy."

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Dan Bell is the Senior Dealer at HiFX, a UK-headquartered foreign exchange dealer with significant operations in Australia and New Zealand. It has a dealing room in Auckland. See more detail here.