- The Kiwi dollar just hit an 18-month high over the US dollar, while hitting its best level since January over the Japanese yen and February vs. the euro
- News of a proven effective vaccine from Pfizer is a game-changer for the global economy so investors are ‘rotating’ into assets that would benefit from global growth and price reflation.
- The Kiwi is a known ‘commodity’ currency and commodity prices are moving higher as the value of the dollar falls and inflation expectations rise.
- The Reserve Bank of New Zealand (RBNZ) is keeping its policy ‘accommodative’ like every other central bank but kept its interest rate unchanged at 0.25% despite calls for ZIRP at its last meeting.
- CHART: 0.69 and 0.73 are significant resistance in NZD/USD & NZD/JPY respectively
The nature of New Zealand’s export-led economy makes it very exposed to global trade.
If you believe that the first ever joint debt issuance in the European Recovery fund worth 750 billion euros and another US stimulus bill, perhaps worth $1-2 trillion alongside an effective vaccine against COVID-19 that allows economies to reopen will all contribute to rising growth and inflation- then a natural beneficiary would be the New Zealand's economy. By extension, the RBNZ could be one of the first central banks to normalise policy lending strength to the NZ dollar.
Overbought. The Kiwi has already seen substantial gains off its March low. The currency has rallied an impressive 25% and nearly 1500 pips in 8 months. From a technical perspective it is overbought and could turn lower near the big 0.70 handle.
Too soon. The latest news from Pfizer is very encouraging but the path to a readily available vaccine is still uncertain. Every week counts because European countries have already been forced into economically-damaging second lockdowns. The United States could be about to head down the same path if the situation doesn’t improve quickly. The upshot being that the move into reflation trades could be too early if we have to live through an uncertain double dip recession first.
How to play it
Spot forex market:
NZD/USD, NZD/JPY, EUR/NZD, GBP/NZD, CHF/NZD
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