By Roger J Kerr

Gains on Wall Street and global commodity prices moving up again last week propelled the Kiwi back to its previous highs. However it does look like the upward momentum is stalling yet again at 0.6600.

Currency traders and speculators are rightfully a bit wary about holding long Kiwi positions entered at the high end of the trading range. The longer the Kiwi remains in the mid-0.6000's area the greater the damage to local exporter profitability, investment and confidence.

Unfortunately, the manifestation of these negative to our economy are not seen straight away.

Look for the RBNZ to comment on this on Thursday. If the currency appreciation and the export sector are not mentioned by Mr Bollard on Thursday as major threat to our recovery out of recession, the RBNZ would again be demonstrating the different planet they sit on compared to the rest of us.

The reality of the marketplace is that the RBNZ can say what they want, the FX market just ignores their warnings/protestations as greater forces are driving the Kiwi dollar for the moment (or "at the minute" as the Governor would say).

So we come back to what the USD will do against the EUR over coming weeks/months. I cannot see why any fund manager anywhere in the world would be over-weighting to JPY or EUR and under-weighting portfolios to USD at this time.

The EUR/USD has hovered around $1.4000 for some months now. The longer the USD fails to weaken further significantly above $1.4000 the greater the likelihood we get a pull-back the other way to $1.3000. We have been calling for this to happen for some months now and have not been satisfied. On the other hand, the USD has not weakened any further either, as many were forecasting.

Outside USD movements globally, the NZD currency leads to watch this week are the US sharemarket, announcements of a milksolids payout reduction by Fonterra (they have a Board meeting this week) and commodity prices. Nothing new in these drivers, but they continue to dominate the Kiwi's short term direction.

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* Roger J Kerr runs Asia Pacific Risk Management. He specialises in fixed interest securities and is a commentator on economics and markets. More commentary and useful information on fixed interest investing can be found at rogeradvice.com