The Trade That Broke the Kiwi

[Money Trends with Andy Krieger]( Welcome to Money Trends! If this is your first time reading one of our issues, learn more about us [here](. And if you have any questions or comments, shoot us a note anytime [here]( or at feedback@andykriegertrading.com. The Trade That Broke the Kiwi By Andy Krieger, Editor, Money Trends It was 1987, and the New Zealand dollar (or “kiwi”) had been rallying dramatically for 10 months. I’d never traded the kiwi before, but I knew a lot of bankers in New Zealand. I regularly executed business there in the major currencies, since I figured one day, I might really need that liquidity. (New Zealand filled up the dead trading zone between New York’s close and Australia’s open.) But then the summer rolled around, and that’s when the kiwi caught my attention. In just two months, it shot up from 56.6 cents to 66 cents – a 16.6% rally. That’s an explosive move in the currency markets. So I started doing some research on the kiwi… The more I looked into it, the more obvious it seemed: The central bank desperately wanted a lower currency. It needed inflation to cool off so it could lower rates and help exporters by driving down the kiwi. Meanwhile, the market was very long the currency. The trend followers (mainly hedge funds) were all long. It was unlikely they’d be buying much more, considering how far the currency had come. This seemed like a classic bubble to me. The only question was, when should I start selling? The market was super-bullish, super-long, and not particularly deep in terms of liquidity. The entire money supply of the country wasn’t that big, so I figured I should put on a modest short position at first. Then, once I had a major catalyst to convince me it was time, I would pile in. I remember well the conversation that got me started. It was with a trader from ANZ Wellington, the biggest bank in New Zealand. The trader, Nigel, called me up and said, “Mate, you need to buy the kiwi. There is only one way for this currency to go – up.” Usually, Nigel was calm and objective, so he had my attention. He explained that the Consumer Price Index (CPI) numbers were coming out and that they would be the catalyst for the currency’s next surge higher. If the numbers came in worse than expected, Nigel told me, the central bank would have to raise rates even higher… And that would be great for the currency, attracting lots of capital flows. Recommended Link [Stunning money experiment goes viral]( [image]( See this pile of cash here? It’s all $1 bills… Can you guess how much money is in this pile? [Click here to find out]( -- I could follow that logic. Then I asked the obvious question, “What happens if the numbers come out better than expected?” Nigel quickly answered, “Oh, the kiwi would sail. Fundamentals would be better, and money would pour into the country.” This guy was the chief dealer of the biggest trading bank in the country. But his view seemed so ridiculous, I figured it would be the exception. Then I started calling all the banks down there… I spoke with 11 dealing rooms, and every bank had the same view. At that point, I was convinced. The market could go a bit higher… but this was a mania, a bubble ready to pop. I started selling lightly over the next week, and each time I sold, the price went higher. I kept selling steadily until I had sold a few hundred million kiwi. Then something happened. The stock market crashed in the U.S., and people started sprinting for cover. I was sure the kiwi would crater as people scrambled to get out of their risky positions… And holding a currency that needed 15% interest rates to hold up was clearly risky. So I plowed in. I sold billions of kiwi over the next three days, and the currency collapsed down to 58 cents – a 13.4% drop. All the longs were forced to bail once the currency broke technical support below 64 cents. [image] The central bank was happy I had driven the kiwi lower… but they were angry with me for destabilizing it in just a couple of days. And that’s the story of my trade that broke the kiwi. Regards, Andy Krieger Editor, Money Trends --------------------------------------------------------------- Like what you’re reading? Send your thoughts to feedback@andykriegertrading.com. [Money Trends with Andy Krieger]( Andy Krieger Trading 55 NE 5th Avenue, Delray Beach, FL 33483 [www.andykriegertrading.com]( To ensure our emails continue reaching your inbox, please [add our email address]( to your address book. This email was sent to {EMAIL} because you subscribed to this service. If you no longer wish to receive emails from Money Trends with Andy Krieger, [click here](. Andy Krieger Trading welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice. To contact Customer Service, call toll free Domestic/International: 1-888-206-3481, Mon–Fri, 9am–5pm ET, or email us [here](mailto:feedback@andykriegertrading.com). © 2020 Omnia Research, LLC. All rights reserved. Any reproduction, copying, or redistribution of our content, in whole or in part, is prohibited without written permission from Omnia Research, LLC. [Privacy Policy]( | [Terms of Use](