How high can the Kiwi go? NZD/USD has rallied by 600 pips in over a month, climbing from the .8100 area in February to the .8700 region this week. Can this comdoll go for more gains? Here are a few factors that could keep the Kiwi soaring:
1. Upbeat economic data
There’s no denying that New Zealand’s economic reports have been pretty impressive so far. Earlier this week, the trade balance release printed a higher than expected surplus of 818 million NZD, reflecting healthy overseas demand for the country’s products. In fact, a closer look at the components of the report shows that export activity surged by 17%, driven by a rise in dairy exports to China.
Domestic demand has been stable so far, and the consistent improvement in Westpac consumer confidence figures suggests that Kiwis could keep up with their spending habits. Credit card spending is up by an annualized 5.9% while visitor arrivals continue to increase and boost New Zealand’s revenue from the tourism industry.
2. Remarks from RBNZ official Spencer
Perhaps the biggest factor that urged NZD/USD to resume its rally this week was the speech by RBNZ Deputy Governor Grant Spencer. Aside from sharing that he’s happy with the central bank’s monetary policy framework, he also mentioned that lending conditions may need to be adjusted in anticipation of further tightening.
The mere mention of potential rate hikes was enough reason for Kiwi bulls to party, and the prospect of removing lending limits suggests that tighter monetary policy won’t hurt housing loan demand. In addition, Spencer’s remarks also convinced most market participants that RBNZ officials probably won’t be looking to jawbone the Kiwi anytime soon.
3. Positive carry
Last but definitely not least, the positive interest rate differential offered by buying the Kiwi against lower-yielding currencies such as the U.S. dollar or Japanese yen is enough reason for most long-term traders to hold on to their NZD longs. As discussed in the School of Pipsology lesson on Carry Trade, this is a pretty good opportunity to earn extra profits simply by keeping a trade open for days!
Do you agree that these factors can keep NZD/USD in a long-term uptrend? Cast your votes in our poll below!