Kiwi advances on short term risk rally

11.13 NZST, Wednesday 13 June 2012

Kiwi advances on short term risk rally

By Andrew May (Sales Trader, CMC Markets New Zealand)

As the baton of negative contagion moves across Europe, investors are taking advantage of a two week short term rally that has seen a persuasive return back into risk portfolios.

In the wake the NZD has found itself firmly supported above USD 0.7620c trading currently 0.7775 with the AUDUSD keenly eyeing parity again. The Kiwi hit four-week highs given the fractious northern movements upon market open this week and looks set to remain focused on 0.78c. This being a stark contrast to the mid May lows 400pts lower.

I do believe this will be incredibly short term. While we've seen US markets react favourably overnight (Dow up 1.1%) and a general consensus of a pull back into commodities signalling over 1% increases to both bullion and oil, we cannot discount the Greek elections this coming Sunday and the continual capital flight of investors pulling funds from Southern Europe into Germany. The Euro crisis is far from over and investors are deeply concerned it will suppress any recovery.

We can expect to see some large moves across the table over the next week for the Kiwi starting with our own official cash rate tomorrow, widely expected to be left unchanged. Investors will need to be incredibly vigilant squaring off risk positions against short term liquidity. We could see the NZD fall away to under USD 0.74c if the Greek election fails to provide direction back into austerity, yet with all offshore fundamentals remaining positive, pending QE3 around the corner, the Kiwi could retrace 0.7850-0.7950c quite easily.
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