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Kiwi dollar is victim of fundamentals

Last weekend it was Sweden. This time it's New Zealand. The Land of the Long White Cloud faces an uncertain outcome from its election on Saturday.

And, like its Nordic cousin, the kiwi dollar has been under pressure, falling sharply over the past several weeks to US$0.81, a two-month low.

But politics aren't the problem for the kiwi. Rather, the currency is a victim of domestic economic fundamentals linked to a trend shift among global forex traders.

Regarding the former, data released on Thursday showed the economy grew by 3.9 per cent in the year to the second quarter, its fastest such expansion in a decade. But quarter-on-quarter growth of 0.7 per cent shows the cycle may have peaked as falling commodity prices and waning demand from China are felt.

This will encourage the Reserve Bank of New Zealand to leave interest rates at 3.5 per cent for some time to come.

Meanwhile, investors eye the Federal Reserve's approaching tightening.

Scrunched yield differentials reduce the attraction of the dollar-to-kiwi carry trade.

As does heightened volatility. The kiwi/dollar one-month implied volatility has risen 28 per cent since the start of September - though, granted, is still low by historic standards.

The kiwi/dollar this week also saw its 50-day moving average break below its 200-dma; the so-called "death cross" that suggests further declines.

That said, the 14-day relative strength index, a momentum gauge, is just below 30, suggesting the kiwi is in "oversold" territory.

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