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The Aussie and the Kiwi rose against the U.S. dollar on Monday despite hopes for a U.S. debt ceiling deal. At around 5:50 am GMT, the dollar fell very close to the A$0.9 mark, losing 0.44% of its value against the Aussie to stand around 0.9053. At the same time, the greenback surrendered 0.29% of its value against the Kiwi to stand around 1.1340. The euro suffered similar fate to the U.S. dollar, retreating 0.52% against the Aussie to stand around 1.3027 and 0.35% against the Kiwi to trade around 1.6316.
The Aussie continued its strong performance against the world's two dominant currencies in spite of faltering economic performance. For instance, according to
the Housing Institute of Australia, new home sales slumped 8.7% in June. A slowdown in the housing sector came in spite of the central bank's efforts to maintain low interest rates.
To make matters worse, Australia's manufacturing sector is starting to show signs of trouble ahead as
the AIG manufacturing indicator fell from 52.9 June to 43.4 in July. The results suggest Australia's manufacturing sector is now contracting, since any reading above 50 indicates expansion, while readings below 50 indicate contraction.
While the production side of the Australian economy is starting to lose steam, prices are gathering speed. In July,
Australia's consumer prices rose 0.3% in July, compared to a month earlier, from a flat rate in June. The latest acceleration in inflation will most likely put more pressure on Australia's central bank to start raising its interest rates.
In spite of the string of weak economic data, the Aussie still managed to outperform the greenback and the euro in Monday's early trading. One of the possible explanations is that traders are still more optimistic about the Australian economy than about debt-ridden economies of the Eurozone and the United States. Australia has been the star performer among the developed nations since the onset of the financial crisis. However, Australia's strong performance was hit hard by natural disasters, namely the Queensland floods. The latest data coming from the Australian economy indicate that there are a couple of additional bumps on the road to full recovery for Australia's economy.
New Zealand's economy failed to impress as well, but that did not stop the Kiwi from maintaining its strong run against the greenback and the euro. In July,
New Zealand's commodity price index declined by 0.1%. Exports of commodities are an important engine to the New Zealand economy. Some analysts may worry that lower prices might be turned into lower value of exported goods, thus hurting the country's trade balance data.
Like Australia, New Zealand's strong performance in recent years has been tested by natural disasters, namely the Christchurch earthquake. Again, much like Australia, New Zealand's road to recovery is not an easy ride as its economy has been producing mixed results recently. However, compared to other developed nations in Europe and North America, New Zealand's economy remains healthy.
Bullish:
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Traders who believe that the recent setbacks in the economies of Australia and New Zealand are only temporary, and that there is still enough power in these economies to push the value of the Aussie and the Kiwi higher, might want to consider the following trades:
- CurrencyShares Australian Dollar Trust ETF FXA is a long play on the euro. FXA may rise if the Aussie appreciates.
- WisdomTree Dreyfus New Zealand Dollar Fund BNZ is a long play on the Kiwi. BNZ may rise if the Kiwi appreciates.
Traders who believe that the Aussie and the Kiwi are already overvalued, and are starting to hurt the countries' exporters, may consider an alternate positions:
- ETFS Short Australian Dollar Long US Dollar ETC (Sterling) ETF (SAUP) is a short play on the Aussie. SAUP may rise if the Aussie depreciates.
- ETFS Short New Zealand Dollar Long US Dollar ETC ETF (SNZD) is a short play on the Kiwi. SNZD may rise if the Kiwi depreciates.
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Posted In: Long IdeasNewsShort IdeasCurrency ETFsForexEconomicsTrading IdeasETFsAustraliaEurozoneNew Zealandu.s. debt ceiling
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