By Danica Hampton

The song remains the same, and risk appetite is in good heart as we come to the end of the week. For currency markets this has of course lent support to major currencies, though it has to be said the positive sentiment is expressed overnight in gains on Yen cross rates rather than in outright moves against the USD per se.

The New Zealand Dollar again paused when trying to challenge the previous night's highs above the US 66 cent level, likewise the AUD finding life above US 82 cents relatively brief.

Locally our attention starts to head towards next week's OCR update from the RBNZ on July 30th. The chances of the RBNZ Governor Alan Bollard holding the OCR steady at this meeting, at 2.50%, have steadily accumulated since the early-June MPS. We'd put the odds at 90%. But while our economists believe talk of a turning point is becoming more and more justified, they hope the RBNZ will not try to cheer-lead the recovery story too much at this still-delicate stage.

To do so would underpin further upside in not only wholesale interest rates but, more to the point, the exchange rate. The currency will in all likelihood get a word or two of direct discouragement from the RBNZ at this meeting, knowing that any ongoing strength might yet force the Bank to trim the OCR further to offset the economic damage. This, of course, could reinforce a domestic spending-led recovery, rather than the export production-led recovery we, the primary sector and the RBNZ, would prefer to see. This wrong-way-round composition to growth would, in turn, ring alarm bells around the already-high (albeit moderating) current account deficit.

The Governor noted these sentiments in his published speech of July 14: "what is needed is for the New Zealand Dollar to be persistently weak over the coming years, to encourage the needed business investment to be export orientated and supportive of improvement in New Zealand's external liability position". The Governor notes though that "financial markets cannot be relied upon to focus on New Zealand's case relative to other economies in a timely and fine-tuned way, and price the New Zealand Dollar accordingly".

The Governor goes on to hope that markets will be more discriminating in their investment choices. However, as we've seen in past weeks with various weak data readings and updates from ratings agencies, the Kiwi when caught in the broader global hubris treats such news like water off a duck's back.

Yesterday's speech by our Finance Minister had some news agencies focusing on currency sound bites; however, the real message was around probable changes to foreign investment regulations. Mr English's comments on a weaker exchange rate stated the bleeding obvious. The local calendar is again all Mr English's as he addresses the NZ Shareholders Association on the economy this morning here in Wellington.

Some will note the large offering of toshin funds in Japan, though these carry miniscule opportunity to invest in NZ, the focus according to our Japanese contacts is instead on developing nations, the BRIC nations and to some extent Australian opportunities.

On the day the base for the Kiwi appears in the first instance at 0.6525/0.6550 and after posting fresh 2009 highs resistance looks evident on moves towards the 0.6625/0.6650 window.

Equity indices across Europe and the US posted gains of 1.5/3.0% for the most part, with commodity and risk indexes also encouraging investor appetite. Once again the US earnings season has seen more companies beat analysts' forecasts, encouraging investors' diversity. The BoC also assisted with commentary on their view that the nations' recession is ending though again they noted that the loonie is an "important brake" on growth.

The gains on Yen cross rates comes amid the Dow Jones Industrial Average printing above the 9,000 level for the first time since January and as the market eyes large toshin issuance on today's calendar. US Initial Jobless Claims printed as expected while Existing Home Sales beat analysts' forecasts.

* Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Capital team of economists is available here.