Economic Outlook Makes NZ Dollar Attractive

The New Zealand dollar rose today as the outlook for the nation’s economy remains optimistic, making the kiwi more attractive. Prospects for additional monetary policy tightening added to the attractiveness of the currency.
Traders were waiting for comments from the Reserve Bank of New Zealand and it did not disappoint those who were bullish on the kiwi (as the New Zealand currency is nicknamed). The central bank said in the Financial Stability Report:

New Zealand’s financial system is sound and well placed to support growth in the economy. Risks to the financial system, from both international and domestic sources, have eased since the last Report. Several issues remain in focus, including: the high levels of debt in the household and agricultural sectors, New Zealand’s exposure to offshore financial markets, and risks to financial stability in China.

As for monetary policy, the RBNZ commented:

The Reserve Bank’s assessment is that current prudential policy settings, in combination with the outlook for monetary policy tightening, are appropriate.

The comments about monetary tightening were especially welcomed by NZD bulls.
The retail sales report was a bit disappointing as it showed that the total volume of sales grew 0.7 percent in the first quarter of 2014 from the previous three months, while market participants were counting for 0.9 percent growth. Still, the disappointment did not hurt the kiwi in a noticeable manner.
NZD/USD rallied from 0.8625 to 0.8667 and EUR/NZD dropped from 1.5878 to 1.5818, trading near the lowest rate since March 28, as of 20:52 GMT today. NZD/JPY ticked up from 88.20 to 88.28.

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