After the rally in the Australian dollar to its highest level year to date, it was the turn of the New Zealand dollar to gain over the greenback. The Kiwi reached its highest level against the US dollar since August, 2011. The NZD/USD pair closed above 86 cents. It has been the best-performing major developed market currency this year.
The Reserve Bank of New Zealand raised its benchmark interest rate by 25 basis points to 2.75 percent, from 2.5 percent at its last meeting. In the zero-interest-rate policy (ZIRP) environment, where monetary policy in the developed world has been defined by interest rates near or at zero, New Zealand became the first country to raise it.
This unique position and the higher interest rate differential will make the New Zealand dollar, or the Kiwi as referred to by traders, one of the favourite long positions within the developed market currency space.
But it must be noted that there are conflicting views regarding the strength in the kiwi within finance officials.
On one hand, Reserve Bank of New Zealand Deputy Governor Grant Spencer said he is happy with the current policy framework. As the New Zealand currency appreciated more than 7 percent against the US dollar over the past 2 months, he did not express any renewed concerns about the currency.
Instead, he said, exporters have adjusted to the high exchange rate, which suggests that they don't plan to slow tightening or intervene in the currency as a result of NZD strength.
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On the other, the country's Finance Minister Bill English said in an interview in Hong Kong that the kiwi dollar was a bit "too high". He further said: "It makes it difficult for our economy to rebalance."
Yet, the kiwi may have a further upside, left against the Yen and the Euro. But against the US dollar, 87-88 cents should prove to be a top. One can look to short the currency against the US dollar at those levels. The yearly range is most likely to be between 80-84 cents.
On the commodities front, West Texas Intermediate crude oil advanced to a two-week high after the inventories at Cushing, Oklahoma, the delivery point for the contract, dropped for an eighth week, even as Brent gained in London.
Cushing supplies started falling in January after the southern link of TransCanada Corporation's Keystone XL pipeline to the Texas Gulf Coast opened, easing a bottleneck from the hub, according to Bloomberg news.
Ukraine tensions are back on the radar as President Barack Obama said sanctions against Russia may include the energy sector. The euro/US dollar pair is headed towards the 1.37 level having breached the 1.3750 support.
Looking at the daily chart of WTI crude, no sell signal is seen. Bullish fundamental factors should be in play as mentioned above and the next target should be $102.60/barrel.
(Vatsal Srivastava is a senior market analyst. The views expressed are personal. He can be contacted at vatsal.sriv@gmail.com)