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NZ dollar steady, interest rates dip as RBNZ holds LVR settings

Wednesday 29th May 2019

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The New Zealand dollar was little changed although interest rates fell after the Reserve Bank held its loan-to-valuation restriction settings steady.

The kiwi was trading at 65.42 US cents at 5pm in Wellington from 65.44 at 8am and the trade-weighted index was at 72.18 points from 72.17.

The central bank said its LVR settings “remain appropriate for now” and that any further easing is subject to subdued credit growth and house prices continuing and to banks maintaining prudent lending standards.

“There was a small downward push on swap rates. That’s mainly because the interest rates market is looking for an excuse to push rates down,” says Peter Cavanaugh, the senior client advisor at Bancorp Treasury Services.

“Some were expecting an easing of the LVR restrictions so therefore no easing equals a tightening in relative terms,” Cavanaugh says.

The New Zealand two-year swap rate fell to 1.4477 percent from 1.4771 yesterday while the 10-year swap rate eased to 1.9250 percent from 1.9700.

But the currency market “has been extremely volatile within a microscopic range,” Cavanaugh says. So far this week, the kiwi has traded a mere 20 point range against the US dollar.

ANZ Bank’s latest monthly business confidence released today showed a small improvement, as expected, but firms remain pretty gloomy.

The survey showed a net 32 percent of the 364 respondents expect business conditions to deteriorate over the next 12 months, down from the net 37.5 percent who shared that view in April.

The agricultural sector was the most pessimistic with 63.9 percent expecting conditions to deteriorate.

“The agriculture sector, in our view, is unnecessarily pessimistic,” Cavanaugh says, adding that dairy, meat and lumber prices are all at good levels and the falling currency is also helping exporters.

The United States-China trade war continues to fester in the background with the Chinese Communist Party-owned People’s Daily newspaper threatening to use rare earths as leverage against the US in an editorial after US President Donald Trump had said he wasn’t ready to make a deal. The newspaper's commentary included a rare Chinese phrase that means 'don't say I didn't warn you'. 

The New Zealand dollar was at 94.42 Australian cents from 94.48, at 51.67 British pence from 51.70, at 58.59 euro cents from 58.60, at 71.47 yen from 72.17 and at 4.5237 Chinese yuan from 4.5198.


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