By Roger J Kerr

The Kiwi pull-back to 0.6260 proved to be very short-lived last week, a weaker USD globally again lifting the Kiwi to well above 0.6400 in recent days.

I still remain of the view that the USD weakness against the Euro, Pound and Yen is unsustainable.

Commodity prices should ease off over coming weeks as global players perhaps realise that China may have purchased sufficient raw material inventory for their needs this year at the low prices. Once the big industrial buyer is removed from the market the supply/demand equation would favour prices drifting lower.

Lower commodity prices will pull the AUD and NZD back down, and be more positive for the USD.

The local FX market is talking more and more about the influence of the upcoming bulge in Uridashi and Euro-Kiwi bond maturities as a real negative for the Kiwi.

Over recent months the re-investment rate for these bond maturities has varied from 30% to 50%.

Now with Australian term interest rates above ours it is hard to see why these investors would stay in the Kiwi dollar.

We have not really seen net NZD selling from this source to date, but maybe that is about to change.

Immigration inflows and the improvements in the Current Account deficit are emerging as positives for the NZD; however my view is that whole-milk powder prices are probably more important for the shape of the expected economic recovery. If milk powder prices go lower and Fonterra are forced to cut their milksolids payout forecast once again the "NZ economic story" will be looking a bit sad.

It is hard to see the Kiwi exchange rate much above 0.6500 in the short-term, however we will have to see more positive USD news or something more negative (milksolids payout?) for New Zealand to get it back below 0.6000 over coming months. The AB's losing the first few Tri-Nations rugby games may form part of that loss of confidence locally!

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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