Strong NZD ahead of final 2012 RBNZ meeting

10.44 NZST, Wednesday 5 December 2012

Strong NZD ahead of final 2012 RBNZ meeting
By Andrew May (Sales Trader, CMC Markets New Zealand)

If you take cues from yesterday's Reserve Bank of Australia rate cut, then expect a similar resurgence to an already stubbornly high Kiwi dollar. The NZD/USD opens up 35pts today to 0.8240 literally carried in the wake of its belligerent trans-Tasman neighbour and in the face of continuing fiscal cliff deliberations.

As the RBA slashed its OCR 25pts to 3% yesterday in a fairly anticipated move, analysts were left scratching their heads as to why the AUD/USD initially dropped 20pts then spiked up around 75 to currently trade 1.0475 treading new support at 1.0460.

The robust Australian economy has been hit hard in sharp falls of commodity prices and a waning demand from China indicating bias that Australia's somewhat inconceivable resource sector boom may have peaked, yet if you compare 'apples for apples' as investors search for comparable returns, then Australia at 3% still is an incredibly attractive and viable option. And if Australian owned banks pass on the full 25bpt cut to borrowers we should see gradual stimulus and momentum return to the local economy. A key indicator on whether the 'Aussie' will remain in the high 1.04 bracket will be todays GDP.

Expect a similar showdown but with less 'fireworks' tomorrow for the final NZ OCR review for 2012. Its highly likely rates will remain unchanged for the 14th period in a row, however as we saw yesterday, the NZD/USD should be propped higher on risk appetite to test 0.8255-0.8275. Given the state of the global economy, Reserve Bank Governor Graeme Wheeler will sit on his cards for now, waiting and watching with the rest of the developed world entrenched with anticipation for the 'beginning of the end' or the 'end of the beginning' for the US economy and their looming fiscal cliff.

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