Kiwi Dollar Hits Fresh Post-Float Highs

The New Zealand dollar surged to fresh post-float high of 0.7934, boosted by renewed speculation of a 25 basis points rate increase by RBNZ at the July 26 meeting.


  • Finance Minister Cullen Concerned Over Overvalued Currency
    Finance Minister Michael Cullen reiterated New Zealand government?s belief that the Kiwi dollar was overvalued, and warned currency traders of the risk of paring one-way bets against the currency. Although the government is aware of the dampening impact a high exchange rate has on the export sector, there are no immediate options available to correct the structural imbalance.
  • New Zealand Maintains Top Credit Rating From S&P?s
    Standard & Poor’s announced that sovereign credit ratings on New Zealand will be maintained at AA+/A-1+ for foreign currency, and AAA/A-1+ for domestic currency. The strength of New Zealand?s fiscal policy aided the country to retain its top credit rating despite concerns over the persistence of large current account deficits and resulting high levels of external debt.
  • Kiwi?s Strength Cause for Concern among Politicians
    The Kiwi dollar?s climb to a fresh post-float high yesterday, coupled with speculation the NZDUSD pair will break 0.8000 USD, has led New Zealand?s politicians to volley blame against both the government and the Reserve Bank of New Zealand.
    Source: The New Zealand Herald

[B][U]Market Activity:

[/U]Currency Market - NZD:
The New Zealand dollar surged to fresh post-float high of 0.7934 USD, boosted by renewed speculation of an interest rate increase by RBNZ at the July 26 meeting. The Kiwi dollar also strengthened on news the other high-yielder, the Australian dollar, rallied to 0.8737 at the close of the Australian session. A trade weighted index, measuring the strength of the New Zealand dollar against the currencies of New Zealand’s five key trading partners, set a new record of 76.08.

Whether the New Zealand dollar will break 0.8000 against the US dollar is a topic of hot debate. Aiding the Kiwi?s ascent are robust fundamentals, specifically the surge in May retail sales and higher-than-expected Q2 CPI, which have bolstered speculation of an OCR increase. A Credit Suisse index, measuring likelihood of rate hike at the RBNZ?s meeting next week, rose from 44 percent before the SNZ report to 72 percent afterwards. On a similar vein, results of a Reuters poll taken after Monday?s CPI data indicated that 10 of 17 forecasters voted in favor of a rate increase on July 26.

[I]NZDUSD (Daily Chart)

Source: Bloomberg

[/I][B]Equity Market - NZSX-50:

[/B]New Zealand?s bourse vied for investor attention even though the spotlight remained on the currency market amid renewed speculation of another interest rate hike at RBNZ?s July 26 monetary policy meeting. The benchmark NZSX-50 index advanced to 4258.84, up 18.48 points, or 0.4 per cent. Turnover amounted to NZD 150.7 million and losses outweighed gains 49 to 44. As the Kiwi dollar peaked to fresh post-float highs, shares of export-oriented retailers took a hit - Pumpkin Patch declined by 3 cents to NZD 344 and Michael Hill slid 9 cents to NZD 990.
[I]NZSX-50 Index (Daily Chart)

Source: Bloomberg[/I]
Fixed-Income Market - 10-year Government Bonds:

With the currency and equity markets rallying forth, investor interest in the market for New Zealand?s government debt was tepid. Bond yields on the benchmark 10-year government note rose amid lack of demand for government notes. Two-year bond yields reached the highest level since June 1998 to peak to 7.74 percent, a gain of 7 basis points.
[I]10-year Government Bonds (Daily Chart)

Source: Bloomberg[/I]