Kiwi might gain further on soft commodities rise as RBNZ worries on housing inflation

Kiwi might gain further against Dollar, which already up close to 500 pips from its recent low. Soft commodities across globe are showing sharper turn around, which might buoyant the mood for Kiwi. In another event RBNZ governor Graeme Wheeler stayed away from hinting further rate cut.

Delay by US Federal Reserve in hiking rates has given opportunity to Reserve Bank of New Zealand to pause for the moment and assess the situation, given recent rise in softer commodities. Latest commitment of traders (COT) report showed that hedge funds have sharply shortened their short side bets on agricultural commodities, which comprises major exports of New Zealand.

• Milk prices are up in four consecutive auctions and might move further as output is set to decline in both 2015 and 2016, two consecutive years for the first time since 1970 in New Zealand, world's largest producer.
• Similar trend can be seen across soft commodities segment be it Sugar, which is up close to 20% from recent low or orange juice or Soy bean.

Latest data from Real Estate Institute of New Zealand (REINZ) shows that prices are skyrocketing in New Zealand. In some areas, dwelling prices are rising at 15-20% rate.

In his latest speech, RBNZ governor showed concern over this saying that, RBNZ remains conscious how low interest rates can feed into housing demand and eventually housing inflation.

Probabilities of another rate cut of 25 basis points from RBNZ in next meeting has declined below 20%, though it might still go for a cut by end of the year.

Even if Kiwi drops towards 0.56 target area, there could be much larger correction of another 400-500 pips.

Kiwi is currently trading at 0.673 against Dollar.