Can Kiwi Pop?

Can Kiwi Pop?

Even by the miserable measures of the recent comm dollar rout -- the performance of the kiwi has been especially weak. While Aussie and loonie have rallied with any uptick in risk flows, the kiwi has been dormant marking time at the 6400 level. Part of the reason may be the fear that RBNZ authorities will cut rates at tomorrow’s central bank meeting.

However, there is little cause for any monetary stimulus now. Although price levels have plummeted as they have everywhere in the developed world due to plunging oil prices, the actual New Zealand economy has held up well and any rate cut at this moment would be premature. If RBNZ holds off and better yet shows no signs of any near term easing the kiwi could quickly verticalize on short covering and carry trade demand as the unit’s 2.5% yield looks very attractive in a zero rate world.

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