Risk appetite keeps Kiwi bubbling into 2013

11.03 NZST, Wednesday 23 January 2013

Risk appetite keeps Kiwi bubbling into 2013

By Andrew May (Sales Trader, CMC Markets New Zealand)

2013 has ushered in a positive start for the New Zealand dollar with respective highs traded against most crosses ensuring the Trade Weighted index is supported over 75pts.

With the fiscal cliff somewhat resolved into more of a 'slippery slope' and the debt ceiling 'kicked down the road', markets have pursued an appetite into risk as earnings season kicks in.

Recent central bank stimulus has provided key direction to markets, retaining interest rates lower for longer while pushing up attractiveness for commodity cross and high yielding currency pairs. The NZD/USD has welcomed in the new year over 82 cents, finding short term support at 83.70 with mid- December resistance continuing to the upside of 84.60.

Local inflation data dented the appeal for the Kiwi last week as a dovish reading came in at 0.9% causing traders to sell off their long positions and react with caution that a rate cut could be on the cards over the medium term.

Traders also unwound their positions in NZD/JPY overnight as the Bank of Japan adopted an aggressive inflation mandate of 2% with unlimited fire-power in open ended asset purchases. Markets however factored the move previously and the NZD/JPY was sold heavily from 75.73 highs not seen since August 2008 to currently trade 74.60 with short term support at 74.30.

With the first OCR review for 2013 scheduled for next Wednesday, the Reserve Bank of New Zealand will no doubt have its work cut out with concerns for retaining inflation within the 1-3% target band while placing a hand brake on a vastly tracked Kiwi dollar.

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