The downward trend of the NZDCAD currency pair continues. The minimum of March 2020 – the level of 0.801– has already been overcome, but traders don't consider this fact – it seems that they continue to see the potential for a further decline.
It is interesting that such a marked difference in the strength of the New Zealand and Canada currencies is seen even when the interest rates of the central banks of these countries have become equal. After yesterday's sessions, the New Zealand and Canada financial regulators have raised the key interest rate to 2.5%. In addition, the Bank of Canada went for a one-time rate increase by 1%, standing out from other central banks located in developed countries.
However, the interest rate does not really provide an explanation of such a downtrend of NZDCAD, so let's focus on a wider range of macroeconomic indicators.
A special attention should be paid to the trade balance. The trade deficit has been observed in New Zealand since the middle of the previous year, and it continues to increase, weakening the national currency. The Canadian trade balance seems to be in a better condition, even despite the fact that there was a correction in gold and oil prices in recent weeks. And while the global energy crisis is escalating, the situation will probably stay the same.
An important sign of the stable downtrend is successively lower highs and lows. This pattern has been consistently confirmed since March, and until it is refuted (for this, the price should be fixed above 0.826), transactions aimed at the downtrend of the NZDCAD are much more reliable.
The RSI indicator is approaching the oversold zone but has not entered it yet, which allows the NZDCAD pair to decline for some time before it bounces up. You can wait for a bounce up and then open a position aimed at the price decline in order to reduce risks. The target – minimum of autumn 2012 of 0.78.
The following trading strategy options can be suggested:
1) Sell NZDCAD at the current price. Take profit – 0,78. Stop loss – 0,805.
2) Sell NZDCAD when it bounces up (not above the level of 0,805). Take profit – 0,78. Stop loss – 0,815.
Traders can also use Trailing stop instead of a fixed Stop-loss at their disposal.