The New Zealand dollar continues to make headlines, reaching a fresh three-year peak as it breaks through a key resistance level at US88 cents. The Kiwi has gained US5 cents since the start of the year, spending the last couple of weeks between US87 and US88 cents. A series of interest rate rises have been the main driver behind the move, with a weak US dollar and more upbeat outlook from credit rating agency Fitch Ratings finally pushing the dollar into new territory.
Analysts are split on the future of the New Zealand dollar, as traders and investors show renewed interested in the vibrant local currency. Some experts are tipping the dollar to fall after breaking such a significant psychological number, while others expect it to keep rising into new post-float territory. The currency is now in reach of the post-float high of US88.4 cents set in August 2011, as a carry trade resurgence brings fresh energy into the market.
The Kiwi has spent the last couple of weeks trying to break through US88 cents, significant resistance that has proved tough to crack. Even with the dollar managing to sneak its way above this level in recent days, expanding into new territory will prove difficult. However, while retail traders and investors are always wary of new ground, some institutional speculators are expecting the Kiwi to keep rising against the US dollar.
According to Westpac senior market strategist Imre Speizer, "If anything I would say over the last few weeks the speculative institutional set has been buying the kiwi", adding that a peak of about US89 cents would be a "sensible number". While the recent rise of the dollar to a new three-year high against the greenback was a result of Fitch upgrading New Zealand's AA rating to positive from stable, underlying global and local conditions continue to support the rising currency.
According to Raiko Shareef, a currency strategist at Bank of New Zealand, "Fitch was the catalyst for that particular jump higher but overnight there was a general uptrend for both Aussie and kiwi and a whole bunch of emerging market currencies - the big theme at play still is one where the carry trade reigns supreme... It peaked its head above 88 cents - it's still a struggle for the kiwi to break that level in any significant fashion, it keeps on testing it."
New Zealand's rising interest rates have caused a resurgence in carry trade, where investors borrow cheaply in their home currency to invest in higher yielding currencies such as the New Zealand dollar. The Kiwi is one of the only global currencies making significant moves at the moment, which has also attracted short-term traders looking to bounce off technical levels.
While the Kiwi is expected to continue dealing with tough resistance, the shear perseverance of the New Zealand dollar in recent weeks has led to optimistic forecasts. With the US dollar recently weakening after the release of the June Federal Reserve meeting minutes and the Kiwi also up against the Euro, Pound, Yen, and Aussie - the New Zealand dollar has solid support to hold its current position and may strengthen further in the weeks and months ahead.