A Kiwi Play on the Payroll Report

10/30/2012 9:00 am EST

Focus: FOREX

This Friday will bring the last jobs report before the election, and CNBC.com, currency blogger, Kelly Holland, writes about a currency play based on a potential shift in risk appetite.

The seemingly endless presidential election is almost over, but not without a last non-farm payroll report to possibly shake things up. Economists are expecting about 120,000 new jobs to have been added, and they see the unemployment rate ticking up to 7.9%.

That shouldn't have a major effect on the election, says Andrew Busch, global currency and public policy strategist at BMO Capital Markets. "It's not really going to change a lot of people's minds unless it goes to 7.7%," he says, at which point President Obama might win over some more voters in Ohio.

For currency traders, though, the report could create a nice trading opportunity, according to Brian Kelly of Shelter Harbor Capital. If the report comes in as expected, "then everybody will start to think about whether we're going to have bigger QE," he told CNBC’s Melissa Lee.” The Fed has now targeted the unemployment rate."

So Kelly thinks there is a currency trading opportunity based on a shift in risk appetite. "If you get into a risk-on type of market," with investors considering a possible increase in quantitative easing, "you want to buy the New Zealand dollar, he says.

Kelly recommends buying the kiwi against the U.S. dollar at 0.8250 with a stop at 0.8100 and a target of 0.8540 (NZD). "If you think that the Fed's going to continue to put even more money into the system, then this is the way to play it."

Busch notes that Royal Bank of New Zealand officials have said they don't like the kiwi's current strength—but they don't seem to be ready to do anything about it. "Unless they do something, I think B.K.'s got the right trade."

Todd Gordon, co-head of research and trading at Aspen Trading Group, is leery of New Zealand's central bank. "In this environment, with fear rising, I just don't see central banks hiking rates, and that poses a threat to the New Zealand dollar," he says. At the same time, though, Gordon points out that the kiwi has broken daily resistance, which should provide technical support.

By Kelly Holland, Currency Blogger, CNBC.com

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