In The News - Sydney Morning Herald - Caution grows over Kiwi/Aussie strength

Hedge funds and currency strategists are growing increasingly cautious over the New Zealand dollar's strength against the Australian dollar, believing its long bull run could finally be nearing an end.

The Aussie slid to an eight-year low of NZ$1.0484 last Friday, its fall having accelerated over the past year as concerns have grown over resource-rich Australia's exposure to a slowing Chinese economy. Its decline has proved a great trade for hedge funds, who have latched on to the clear downward trend and heeded Australian central bank governor Glenn Stevens's wish for the Aussie to weaken.

But some think the New Zealand dollar's gains may have run their course, with the factors behind its strength largely priced in. These include higher interest rates, which are widely expected, with a minority in markets thinking the Reserve Bank will even begin tightening policy on Thursday.

Ian Gunner, manager at Altana Hard Currency Fund, said the fact that Friday's fall in the Australian dollar-New Zealand dollar rate was followed by a move higher, forming a so-called candle stick on the chart, supported this view.

"It's a warning sign that we're close to an end. It would suggest the beginnings of a reversal," Gunner said. "I'd be very nervous putting on short Aussie-Kiwi."

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