Steadfast Kiwi holds firm footing amidst holiday season

10.57 NZST, Wednesday 14 August 2013

Steadfast and true Kiwi holds firm footing amidst summer holiday season

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

The Greenback has flexed its muscles overnight gaining ground over most crosses as ‘neither here or there’ US Retail sales figures saw the Kiwi lose ground and retest a firm yet incredibly resilient late July 0.7950 support.

We open today down from this week’s 0.8057 high to calmly tread water at 0.7960 after markets interpreted a sluggish 0.2% growth in July advance retail sales as a potential catalyst for the inevitable US FED tapering programme. Consolidated risk aversion ensued to a degree.

The recent tarnished reputation of New Zealand’s ‘100% PURE’ image care of the Fonterra botulism scare seems but a distant memory. NZD swaps closed up 2-3bpts across the curve last night, the highest since 2011 as the NZ market increasingly continues to price in 165bpts worth of rate hikes within the coming 24 months. A 25bpt rise by next March/April will see risk appetite continue to favour the Kiwi dollar. None other than the NZDAUD cross which is only 2% off tradeable highs of AUD 89c.

The Australian economy is widely expected to provide additional stimulus against NZ’s impending economic growth fuelled by increasing house price inflation over the next few years. This will only exacerbate a high NZDAUD and I envision we’ll see AUD 0.92c by year end.

It’s a quiet end of the week for the commodity driven currency with NZ Q2 Retail sales due today and NZ July PMI (Thurs) most likely to provide the next key push for the Kiwi. We anticipate moderate retail growth of 1.5-1.7% (QoQ) and an expansion in manufacturing which should see the NZDUSD obtain a foot hold back into the US 80c stratosphere by end of the week.

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