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Maybe Time to Buy NZD?


Food price inflation may just be beginning. With governments around the world starting to meddle with the free market by threatening to impose price controls (we know how well that works), limiting exports, and the Fed printing dollars at a brisk pace, most likely to destabilize the developing world through inflation or force their currencies to appreciate, it would appear that it may be a good time to stock up on canned tuna. Or at least stock up on NZD. What happens after a natural disaser such as an earthquake, is an inevitable re-building. This will be an additional inflationary pressure, and therefore a buying opportunity for the already well-performing New Zealand Dollar, particularly so because the earthquake itself caused a lot of selling and the value of the NZD has been somewhat depressed since the earthquake. I would recommend a buy around the support line of 0.7350 on NZD/USD, leaving enough margin to buy again at 0.7000 if it does happen to dip that low (unlikely).

Please note that this is a long term play, based on the idea of buying a "depressed asset", with target being at least 0.7950 or possibly higher, depending on the global economic outlook at the time (read China bubble collapsing yet or not? If yes, take profit, if not, keep riding).

Better yet, buy NZD against another commodity currency, such as CAD or AUD and dramatically reduce the risk of a commodity price collapse.

UPDATE 27-04-2011: With our target reached very nicely on NZD/USD, we can now look for our next trading opportunity. There may very well be some more upside here, but with Goldman Sachs exiting commodities, and with NZD/USD rising almost 1000 pips in a straight line, we can be quite happy with the timeframe in which our trade succeeded and not get too greedy.

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