Return to Fundamentals Could Rein In Kiwi Outperformance

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The New Zealand Dollar has done quite well for its bulls in the past couple of week. NZD/USD has formed quite a solid base around April’s lows and gone one to make new higher highs which have taken out all previous near-term peaks back to late February.

This is quite an impressive gain, especially given the shaky global risk appetite often engendered by Beijing and Washington’s trade spat and, more recently, worries about Western military intervention in Syria.

However now the New Zealand Dollar is approaching its 2018 peaks once more. In the 0.7440 region, they match highs previously not seen since July, 2017 NZD/USD momentum has clearly stalled as they approach and, assuming a return to economic fundamentals, it could well stall further.

The US Federal Reserve seems upbeat still on US economic prospects, and ready to raise interest rates at least a couple more times this year. The Reserve Bank of New Zealand by contrast seems no hurry at all to shift its official cash rate from still-record lows, as inflation remains stubbornly weak, even as it picks up in the US.

Should the global trade and Syria headlines allow it, a return to more fundamental driven trading could see the kiwi’s altitude rethought, and a slide back down to lows in the 0.7000 area can’t be ruled out.

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— Written by David Cottle, DailyFX Research

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