ANZ: TEFLON KIWI

From the FXWW Chatroom: Use whatever proverb you like, be it that the world’s travails are like water off a duck’s back for the kiwi, or that you can’t kill two birds (the Kiwi and the TWI) with one stone (the OCR), or that the kiwi is the goose that lays the golden egg (carry) – it seems that nothing can get the kiwi down. It is down a touch overnight, but it’s still above 69 US cents. This is, of course something of a problem for the economy (we’d rather say that than saying it’s a problem for the RBNZ, for ultimately they can’t choose the mix of monetary conditions and will simply respond to what they see in front of them) given the state of dairy prices, the lack of inflation, and because our leading indicators are flagging a mild growth slowdown. As we head into the first day of the second quarter, the NZD TWI stands at 73.1, which is not only at the top of its 12-week trading range, but it is also around 3% above the RBNZ’s technical projections for the quarter. Sure, there are another 90 days left in the quarter, so it’s only early days. But the NZD does deserve to be watched closely (rather than watched like a hawk!), especially with the Fed now openly behaving like a shy dove. Of course, it’s always dangerous to think that simply lowering the OCR is without its risks, and will do the trick (it hasn’t yet), especially while certain parts of the domestic economy (tourism and housing) are humming along nicely. But even so, another showdown looks to be looming, and we would be particularly concerned if the TWI started to trade above 74 in coming weeks.

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