NZ dollar rises vs greenback; further gains may be curtailed by hawkish central bankers

Friday 30th June 2017

The New Zealand dollar rose against a broadly weaker US dollar but may struggle to make further gains in the face of central bankers who are sounding more hawkish than the Reserve Bank.

The kiwi traded at 73.28 US cents as at 5pm in Wellington versus 72.91 US cents as at 8am in Wellington from 73.18 cents yesterday. The trade-weighted index was at 78.29 from 78.37.

"The key thing is really the broad-based US dollar weakness. The Fed is pretty hawkish but we've seen a change in rhetoric from central banks everywhere," said Sheldon Slabbert, a trader at CMC Markets.

This week saw hawkish comments from European Central Bank President Mario Draghi, Bank of England Governor Mark Carney and from top policy makers at the Bank of Canada. The kiwi is on track to gain around 6 percent against the US dollar in the first half of the year, benefiting from ongoing strong data and - up until now - higher domestic interest rates.

However, given that New Zealand's central bank has signaled rates here will be on hold for until September 2019 the kiwi's strength is surprising, said Slabbert. That divergence means it may be overvalued and will eventually have to correct to come in line with the interest rate differentials if the RBNZ doesn't offer any more details on its plans, he said. Short-term he said it could see some further gains against the US dollar - given the greenback's weakness - but he would be surprised to see it move any higher against other trading partners.

The kiwi fell to 64.03 euro cents from 64.15 cents and traded at 56.26 British pence from 56.46 pence yesterday.

The kiwi dropped to 95.16 Australian cents from 95.52 cents yesterday as recovering iron ore prices bolster demand for the Aussie dollar. The local currency traded at 4.9579 Chinese yuan from 4.9552 yuan yesterday and dropped to 81.97 yen from 82.10 yen.

Another factor that could dent the New Zealand dollar is possible risk aversion, he said. An overnight sell-off in US and European markets "had a bit more conviction behind it," he said. Risk aversion could be shifting toward neutral or even bearish "and that's normally not a great environment for the New Zealand dollar," he said.

New Zealand's two-year swap rate rose 6 basis points to 2.32 percent while the 10-year swap rate rose 10 basis points to 3.34 percent.

(BusinessDesk)

Comments from our readers

No comments yet