The NZD/USD hit a fresh 25 year high after the Reserve Bank of New Zealand surprised the market by raising rates to 8 percent, which is a 9 year high.
This very dynamic is what will keep carry trades alive and well even if the Dow is falling. Although RBNZ Governor Bollard finds the exchange rate unjustifiably high, the 60 percent surge in dairy prices has forced him to fight inflation as aggressively as he can. According to Bollard, domestic spending and overall growth is strong enough to weather 8 percent interest rates. Even though he refuses to comment on future rate decisions, the futures curve is pricing in one more 25bp hike by the end of the year with a slim chance of two. The AUD/USD is also performing well, having hit a fresh 16 year high after strong GDP numbers. Employment data will be the key whether this strength can continue. Despite weaker IVEY PMI and building permits, Canadian dollar bulls refuse to give up.