Kiwi's ascent may be reaching its zenith

It may be time to take profits on sharp gains in the New Zealand dollar versus the US dollar, even though the yield and macro-economic arguments for keeping the long position open remain. "Leave something for the next man" is an old forex trading adage, in the knowledge that picking the top or bottom of a market is as much luck as skill, and that the best time to exit a position is when someone else still wishes to take it on.
The kiwi, as the New Zealand dollar is known, soared to $0.8795 on Friday from $0.8400 on June 4, no mean feat for a flightless bird, and only half a cent below its post-1985 float high of $0.8842 hit in 2011.
But even birds can suffer altitude sickness as oxygen levels thin in the upper troposphere, and the kiwi may be no exception: despite a flurry of good economic data in recent days, the pace of the New Zealand dollar's ascent has stalled. On the surface, the evidence for continuing appreciation of the New Zealand dollar versus the greenback seems compelling.
The US Federal Reserve continues to rein back its asset purchases but still has an ultra-accommodative monetary policy, and recent US data has been weaker than expected.
By contrast, the Reserve Bank of New Zealand is expected to raise its benchmark rate by 25 basis points to 3.50 percent at its July 24 meeting, according to analysts polled by Reuters. .
The positive carry for holding the kiwi over the lower-yielding dollar is underscored by evidence of economic health.
New Zealand reported a seventh consecutive monthly trade surplus in May. Strong dairy and meat sales underpinned export earnings, pushing the annual surplus to a near 20-year high, according to official data on Friday. But that proviso aside, why take profits now on a long kiwi, short dollar position when the underlying picture ostensibly remains supportive of the New Zealand dollar? The answer is short-term positioning.
US Commodity Futures Trading Commission (CFTC) data for the week ending June 24 showed the net contractual long kiwi short dollar position rose 64.8 percent to 6,152 contracts from 3,733 the week prior.
Admittedly, that's way below the 16,855 net contractual long kiwi position for the week ending June 10, but it is arguably the flip in sentiment that is most revealing.
The latest CFTC data shows how short-term sentiment has again swung in favour of the kiwi over the dollar, and is arguably symptomatic of the wider forex market's attitude.