NZD TWI at post float high

11.04 NZST, Wednesday 10 April 2013

NZD TWI at post float high
By Andrew May (Sales Trader, CMC Markets New Zealand)

Our Trade Weighted Index reached another post float high overnight to 78.40 as we open today at US 0.8520, the highest level since September 2011. This has clearly broken through an 0.8490 (76.40%) retracement and now has its sights set on the 0.8839 historic August 2011 post float high.

There seems very little to stand in the way of the New Zealand dollar, which has rebounded strongly with capital outflows from defensive currencies back into resource cross pairs. Indeed risk is back on the table pushing commodities higher. The Kiwi European cross pairs are also at respective highs with the NZDGBP heavily supported at 0.5510 trading 0.5560 and the Kiwi Euro sitting happily above 0.65.

Chinese CPI data was the only blip on the radar or mild concern for traders yesterday. The reading which showed inflation had contracted annually to 2.1% gave the antipodean currency a very strong US 0.8465 foot hold to climb higher as offshore US market sentiment pushed to new highs rekindling risk sentiment.

Therein lies a potential storm for this overvalued New Zealand dollar as it once again provides a headache for the RBNZ to control its meteoric rise. A high dollar will truly hurt our export industry yet we're experiencing rising house price inflation that sees a continual 'see-saw' effect on National fiscal and monetary deliberation. Reserve Bank Governor Graeme Wheeler has his hands full with what tools and limited options he has to stem the flow. You can't amend one by cutting or raising rates without affecting the other.

And then there is the vastly approaching Q1 GDP which will show the impact of the worst drought the country has experienced in 60 years. Traders no doubt will require adequate foresight to deal with these potential setbacks in the Kiwi and amend their risk portfolios accordingly. However, for now and as long as North Korea doesn't set its 'dogs of war loose', expect the Kiwi to remain for above US 0.8450.

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