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Kiwi continues to hold 81c despite flat inflation outlook

11.08 NZST, Wednesday 22 August 2012

Kiwi continues to hold 81c despite flat inflation outlook

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

The Kiwi continues to be well supported above US 81c and looks set to see August out comfortably above 0.8070. Overnight we touched 0.8142 before falling away to currently tread 0.8110.

As a risk reactionary security, the growth laden currency has enjoyed basking in the limelight of recent US Market volatility. The S&P index has climbed at least 12% this year and at one stage surpassed four year highs. This was no doubt 'pushed and pulled' care of Apple's meteoric rise to setting a record US market cap yesterday making Apple the most valuable listed company in history. But what comes up eventually must come down. Apple dropped the ball 1.4% in late morning trade to close at US 656.06.

Risk sentiment also has investors buying at the whim of the European debt markets as traders are hopeful that the ECB will push ahead with plans to buy Southern European bonds to help ease tension in the beleaguered Eurozone. Across the Atlantic, investors will look ahead to next week's Jackson Hole global bankers symposium to see whether Federal Reserve Chairman Ben Bernanke will continue to dangle the elusive carrot of policy easing mandate. This of course leads to Reserve bank monetary policy meetings for both Europe and the US early September. Risk appetite should bode well until outcomes are presented and herald strong attraction for commodity-linked currencies such as the Aussie and Kiwi. And don't forget the worst grain and dairy drought in 50 years that the US is also currently experiencing.

The Kiwi relished in our Trans Tasman's slipstream after the RBA yesterday suggested it may not need to cut rates again citing their domestic economy is stronger than expected, offsetting the weakness in the global economy.

And despite a 2.3% 'flat line' in the two year Reserve Bank New Zealand inflationary report yesterday (which clearly showed New Zealand is also in no hurry to amend interest rates anytime soon), we'll once again be awaiting key fundamentals from the current overseas macro environment to really provide signs of life for our protagonist Kiwi dollar.


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