Opinion: Kiwi hits 58 USc; IMF says NZ in better position than most to face global storm

By Danica Hampton While we often have to write and accept that the NZD moves off the back of the broader FX markets sentiment and flow it's fair to say the NZD was front and centre yesterday for many traders and accounts. There was the small matter of the release of the Q4 Current account data, which was largely as anticipated, the deficit widened to around $16.1b on an annual basis. At the margin, though, that was slightly better then the market expected in percentage-of-GDP terms, printing at 8.9% (versus forecast of 9.0%). That "“ and the improvement we foresee in New Zealand's external balances over the course of 2009 "“ should help take some of the pressure off New Zealand's sovereign credit rating, something which has received increased scrutiny of late. The IMF gathered headlines as their Preliminary Concluding Statement on New Zealand went to the media. Their outlook is clouded by the "unprecedented uncertainties surrounding the depth and duration of the global recession", however, they note that "NZ is in a better position than most advanced countries to face the global storm, given its sound macroeconomic policies"¦and healthy banking sector." Once again they note and got headlines for their notes on "a key vulnerability"¦is the high level of short-term external debt, mostly owned by banks" and "the near term outlook is weak." The NZD shrugged off any negative implications though thanks to the level of yields out along the curve. Sharp moves higher in recent days attracted the attention of both FX traders as well as Asian investors hungry for yield and a home for surplus cash funds. Japanese demand noted during a busy day on most NZD desks as the Kiwi progressed from the US 0.5625 level to challenge 0.5775 by days end. Gathering plenty of attention was an extension of recent gains in the NZDAUD rate, just in time for the April school holidays ventures to the Gold Coast. The cross rate pushing on from a 0.8130 open, past the 200 day m.a at 0.8193 and towards the 0.8250 level in overnight trade. Along the way we noted a mix of macro and leveraged accounts stopping out of "short" NZDAUD positions as the momentum of the NZD strength forced them to stop out in a session of high volume and market interest. Overnight is somewhat subdued it seems for most FX, not surprising really given the tumult of the previous 24 hours and the volatility traders witnessed post Geithner's SDR comments. The NZD holding a firmer bias on cross rates, though trapped below the US 58 cent level for the most part. Today we have of course Q4 GDP, the detail amongst yesterday's release suggested some upside risk to our forecast for Q4 GDP, due at 10:45am. Formally, we're at -1.1% q/q for the preferred, production measure. But in the wake of better-than-expected trade flows in the data yesterday, we've tweaked our expenditure GDP measure to -0.8%. That, to us, probably provides a good sense of the direction in which the risk around today's growth figures lies. To wrap the week locally traders will tend to treat any pullback to the 0.5725/0.5750 window as a buying opportunity, as long as there's no negative shock in the data. While the 0.5800 level capped the market overnight more meaningful resistance seems likely on any probe to the 0.5850/0.5875 window "“ bearing in mind the mature nature of the 16+% gains the NZD has seen since March 9th lows at the 0.5000 area. The major currencies are relatively steady overnight, as already mentioned there was such volatility the night before that many traders and accounts were content to take stock and tread water for a session. Risk FX remains relatively buoyant with Asian stock indices making light gains, and while European indices hardly impressed there are 2% gains on the US bourses as I write. For the record, UK retail sales volumes fell a whopping 1.9% in February, the biggest drop since September 1995. While US Initial Claims printed at 652k (previous 644k) and Continuing Claims printed at a record high of 5560k and the final print on Q4 GDP eased to -6.3%, from a previously released preliminary number of -6.2%. As the financial world adjusts and adjudges QE there was some media sound bites from the ECB's Papademos who said it "may be warranted that Central Bank purchases private sector bonds to enhance liquidity", but added that "no decision has been made". * Danica Hampton is BNZ's Currency Strategist. All of the research produced by the BNZ Markets team of economists is available here.