Kiwi red flags?

Moody’s Economy.com is wary about the future of the New Zealand dollar. “There is very little upside potential to the kiwi at the moment,” Stroppiana says. “All of the risks are associated to the downside. In particular, a crash in the New Zealand
housing market is likely, which would be disastrous for the kiwi.”

BNP Paribas was also bearish on the outlook for the kiwi, with a year-end target of 0.6100. However, Fink admits, “The trend is toward greater appreciation in these currencies. The risk is of a sharp reversal and the timing is very uncertain.” She advises traders to be on the lookout for “global growth fears” as that would not be beneficial to these currencies.

The butterfly effect

The bottom line is that global liquidity conditions and riskaversion levels will remain key factors for both currencies in the months ahead. “I’m worried about the butterfly effect,” Staskow says. “Global cash has been very loose for a long, long time. A move toward risk aversion will weigh on these currencies. You can’t ignore the increasing presence of retail traders in the FX and stock markets. They will get the margin calls and be forced to sell.”