The currency pair NZDCHF has been within the downward channel since the end of March. Despite the continuing tightening of monetary policy by the Reserve Bank of New Zealand, traders don’t favor the “kiwi”. Can the New Zealand currency change the power balance in the forex?
The Reserve Bank of New Zealand became one of the main financial regulators in the developed countries that have tightened monetary policy — a hike of the key rate began in autumn. After today's session, the rate has increased by 0.5%, and now it is 2%.
Usually, such a level of key rate means the shift of monetary policy from “expansionary” to “neutral” — it no longer stimulates economic growth, but it doesn’t limit it too much.
But this time the situation is far from “usual” — the inflation at 6.9% indicates that further, it will be necessary to increase the rates in the economy. And here the problem arises: since in New Zealand the rate began to grow earlier than in other developed economies, the potential for its further increase is no longer so big here.
The currencies whose cycle of rate hikes only begins or hasn’t started yet look more attractive. And considering the highly actual protection status of these currencies as the USD and CHF, the demand for them is far from being exhausted.
As the tightening of the monetary policy by the Fed has already influenced the quotations of American currency, let’s pay attention to the franc. In the past week, the Swiss regulator has provided comments concerning the possible change of the super low of the -0.75% key rate. It can significantly increase the demand for the franc, and the trend of decreasing NZDCHF will continue.
By reason of key rate increase, the pair NZDCHF has pushed away from the lower border of the channel and directed to the upper border. You can take part in the current growth or wait for the approach to the upper border of the range and open the position from here counting for the new decrease of NZDCHF.
The following options of trading strategy can be applied:
1) Buy NZDCHF at the current price. Take profit — 0.63. Stop-loss — 0.62.
2) Sell NZDCHF when the price reaches the upper border of the channel. Take profit — 0.615. You can use the upper Bollinger Band as the Stop-Loss.
Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal.