The Kiwi is the leading the pack in the G20 today and is the strongest performer versus the USD, so far. So what is the driver?
Fundamental reasons include:
• China has just removed the floor on lending rates to try and boost its economy, which is having a big impact on Au/ Asia currencies.
• Strong credit card spending in NZ for June, which rose 2.6% on the month, and is rising at a 5.4% annual rate, the highest pace since Dec 2011.
• Since the RBNZ is concerned about rising consumer debt levels, this data may worry the RBNZ on the same week that it holds its latest policy meeting.
• Although the RBNZ is expected to remain on hold when it meets on Wednesday, a hike in interest rates, or hawkish comments from the Bank, cannot be ruled out as debt levels continue to rise.
• Interest rate forecasts for New Zealand continues to move higher, with 2 rate hikes fully priced in before the end of the year. This is also boosting NZD.
• NZD is testing a key level of resistance at 0.7950 – the 50-day moving average.
• Above here opens the way to 0.8030 – the base of the daily cloud and a significant resistance level, which marks the end of a technical downtrend.
• 0.8120 is another resistance level of note, the high from June 14th.
Takeaway: The NZD Is riding on the coat tails of expectations of a hawkish RBNZ and the China lending move, which is having a short term upward impact on NZD. The risk in the next few days is that the RBNZ disappoints expectations; however, if it does point to future rate hikes then we could see a protracted NZD rally, although we would expect 0.8020 to attract some light profit taking in NZDUSD in the short term. Any pullback may act as a good entry opportunity.