Kiwi Shenanigans

SHORT TERM CRAZY - Admittedly, I have been perplexed with the latest run of Kiwi outperformance. But there are going to be times when things don't necessarily add up and yet, the price action will do what it does and doesn't have to make sense. Over time, I believe the price action always makes sense, but in the short run, it is perfectly normal to see a market move in a way that will leave you scratching your head. This is where we have been with the New Zealand Dollar and I suspect the run will soon come to an end with a sharp pullback around the corner. 

REMEMBER THIS - We need to remember that the New Zealand Dollar has been doing its own thing. There hasn't been anything out of New Zealand that would confirm such price action, while the rest of the currency market is confined to consolidation trade. So what's going on and how much longer can we expect these shenanigans to last? Just to give you something, it's possible that investors starved for yield are pushing into the New Zealand Dollar. But to have such a large macro bet placed on the currency of such a small economy does not seem wise, especially when the price action is isolated. 

The New Zealand Dollar is overvalued at current levels. Via @joelkruger

NOT HAPPY - What's even more important to pay attention to is the fact that the RBNZ won't be pleased with the New Zealand Dollar at current levels. The RBNZ has already expressed its discontent with the elevated exchange rate and this is even more disconcerting when the currency is appreciating at an accelerated pace against an entire basket of currencies. It's also important to understand where we're at in the risk appetite cycle. Investors are starved for yield but with monetary policy exhausted and little left to incentivize, the outlook for risk currencies like Kiwi should be far more bleak. 

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