The ‘Kiwi’, which climbed by 4.2 per cent against the Yen last week, is in line to record another sizeable weekly advance as the Bank of Japan’s unprecedented stimulus measures cause the New Zealand Dollar to strengthen.
The South Pacific currency is heading for a five-day advance of 4.3 per cent on the Yen after hitting a five-year high during local trade. Meanwhile, domestic data and developments abroad allowed the ‘Kiwi’ to strike a fresh 18-month high against a broadly softening US Dollar.
The New Zealand Dollar exchange rate was trading in the region of 0.8605 against the US Dollar as of 10:48 am
The BOJ decided to double its monthly bond purchases at its most recent policy meeting and high-yielding assets like the New Zealand Dollar have benefited most from the flood of new funds.
As currency strategist Mike Jones comments: ‘The market is going all the way pricing in the Bank of Japan achieving its target – it’s hard to see the weakness in the Yen continuing at this breakneck pace. The Aussie and the Kiwi are probably the two bigger benefactors of the cash that’s come out of Japan.’
On a trade-weighted basis, the ‘Kiwi’ is heading for a 5-day gain of 2.3 per cent.
The currency has also been supported by relatively positive domestic data, such as the gain in New Zealand’s Housing Price Index.
However, the New Zealand Dollar may not continue to strengthen at this pace for long. Next week central bank chiefs and finance ministers from the Group of 20 will meet in Washington in order to discuss a variety of issues. If they comment on the devaluation of currencies through fiscal policy the market could experience volatility and additional NZD gains may be limited.
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