New Zealand Dollar to US Dollar (NZD/USD) Exchange Rate softens from 11-month high still forecast to push higher

Overnight the New Zealand Dollar soared to its highest level in 11-months against the US Dollar overnight due to an improvement in global risk sentiment and as domestic data supported.

Data released by Statistics New Zealand showed that the nation’s current account deficit narrowed sharply in the final quarter of last year. A record rise in dairy exports to China was hailed as the reason for the strong figures and bolstered optimism in the New Zealand economy.

The deficit narrowed to $837 million, a massive $1.7 billion less than the deficit recorded in the third quarter of 2013. Dairy exports saw the quarterly balance of goods and services soar to a $1.8 billion surplus, the largest surplus recorded since records began back in 1987.

“New Zealand exported record levels of dairy products this quarter, which drove the balance on goods and services to its highest-ever surplus” Statistics NZ balance of payments manager Jason Attewell said.

The ‘Kiwi’ also received a boost from an agreement signed by the New Zealand and Chinese governments to allow direct trade between the Yuan and ‘Kiwi’. The deal should increase trade and investment between the two countries.

Despite all of the positive data the NZD to USD exchange rate softened on Wednesday morning as investors grew jittery ahead of the US Federal Reserve’s policy meeting due to be held in the afternoon. The meeting will be the debut for new Fed Chairman Janet Yellen.

“I wouldn’t be surprised if Yellen showed more caution when she comes out with the press conference. It’s more than likely ‘Kiwi’ dips should still be bought against the US Dollar,” said a senior client advisor at OMF.

The Fed is expected to continue with tapering its monetary easing programme by a further $10 billion.