By Danica Hampton The NZD/USD has made further progress overnight, trading past the 0.6050 level as it once again tails the AUD and GBP on their paths higher. For the AUD it is post crisis highs as investors absorb the positives in the outlook for the second half of 2009 that both RBA Governor Stevens and Treasury Secretary Henry spoke of yesterday. At these elevated levels our flows are dominated by investor appetite from Asia, some sovereign demand for currencies noted though wholesale and retail names are increasingly involved in market appetite. Equity markets have generally traded in positive territory which has further supported the improvement in risk appetite, as evidenced by the VIX at 28.6 "“ it's lowest level since September of last year. This enthusiasm of course comes at a time when local manufacturers and retailers will tell you "nothing has changed at the coal face" "“ though this ongoing mood of optimism is not about the here and now, it's about the hope all will be well by Christmas. As mentioned yesterday, the appetite for investment in risk sensitive currencies can be evidenced by rekindled interest in NZ$ Uridashi. Rabobank Nederland NV have launched a NZ$419mio 2year issue through Daiwa Securities which will be offered from May 21 to 29. Our flows on the desk again saw real money demand with a mix of Asian names noted as fund managers and leveraged accounts bought into the optimism that has swept markets along this week. Once again it's a light local calendar, while Australia has May Consumer Confidence & March Leading Index numbers to watch for. Japanese GDP, a provisional Q1 reading will also take our attention at 11.50am. On the day we would expect traders to support shallow dips to the 0.5975/0.6000 level with more meaningful support evident at the 0.5930/0.5840 level. Certainly it would seem the interest in the 200 day moving average (towards 0.5830) has waned for traders with a technical focus. For the topside, we are quickly approaching the 0.6100/0.6125 level that capped the Kiwi earlier this month which with the market in such fine fettle is not out of reach for this market. The headline German ZEW Economic Sentiment index rose sharply in May, reaching a three-year high in the series, we saw an 18.1pp increase to 31.1, its highest level since June 2006. Although press reports will doubtless concentrate on that increase, we would be much more circumspect. The current conditions index fell from -91.6 to -92.8, confounding expectations for a small rise. The deterioration is a further sign that the German economy continues to experience extremely severe headwinds. The current situation index is now at its lowest level since July 2003. The rebound in expectations could have been driven by the sentiment that things could not get much worse, rather than substantial hopes for an upswing. UK inflation proved a little softer than expected in April. The consumer price index rose by 0.2% on the month, a little below expectations for a 0.4% increase. The annual inflation rate eased from 2.9% to 2.3%, against expectations for a 2.4% print. The US session has offered up weak Housing Starts and Building Permits data for the month of April. Housing Starts slipped some 13% to an annual rate of 458,000 (previous 525,000) while the Building Permits data fell over 3% to 494,000. The data it's fair to say making no lasting impact on the day's proceedings with Wall Street in the black by a small margin and risk FX in good heart. Finally worth noting as a cautionary point, but for now making no impact, was an announcement by the Chinese government to the country's steelmakers to reduce production. Inventories are rising unnecessarily in a sign that we may not be headed for the V-shaped recovery bullish analysts expect. ____________ * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.