Kiwi is More than a Fruit; Approaching a Low Risk Buy

The Reserve Bank of New Zealand meets tomorrow. There is little chance of a hike in the 2.5% official cash rate. The market continues to expect the RBNZ to begin raising rates in Q3. There is unlikely to be a shift in these expectations.

This should not stand in the way of a continued gradual appreciation of the New Zealand dollar. Earlier this month, the Kiwi tested the $0.7000 level and from there launched a rally that carried it above $0.7250 for the first time since mid-Jan. Last year's high was set in October near $0.7635. A run back to there assumes that the Oct-Feb decline in the Kiwi was a correction (4th wave for Elliott Wave types).

One of the favorable macro developments in New Zealand has been the rise in milk prices. Fonterra, the milk co-op in New Zealand, is the largest company and accounts for about 7% of the country's GDP. Earlier today Fonterra raised its projected milk price by 40 cents to NZD6.10, which was a larger increase than expected.

Part of the recent strength in the Kiwi has come from the unwinding of the long AUD short NZD positions following the RBA Governor Stevens acknowledgement that rates there are near average. The cross had come off 3% and is now finding support near NZD1.2800, coinciding with the Kiwi's pullback today.

A pullback toward $0.7100, near where the 20 and 200 day moving averages converge today may offer a new low risk opportunity to get with a trend. A break of the $0.7075 area signals a deeper correction toward and possibly below $0.7000.