NZ dollar TWI tops 79 for first time in 17 months, kiwi gains vs pound

Thursday 8th September 2016

The New Zealand dollar trade-weighted index rose above 79 for the first time in 17 months as the nation's relatively sturdy economic growth, comparative high interest rates and recovering commodity prices underpinned sentiment for the kiwi.

The kiwi rose to 74.42 US cents as at 8am in Wellington, having traded as high as 74.79 cents, the highest since May last year, from 74.30 cents late yesterday. The trade-weighted index rose to 78.73 from 78.51 and reached 79.05 overnight, or about 4 percent above the average 76 level the Reserve Bank has projected for the third quarter.

The Federal Reserve's Beige Book showed most US districts reported a "modest" or "moderate" pace of overall growth, and Bank of England Governor Mark Carney downplayed signs of strength in the UK economy while keeping the door open for further easing. By contrast, figures yesterday showed New Zealand manufacturing sales rose in the second quarter, turning from a decline in the first quarter, led by meat and dairy, the latest in a series of relatively sturdy data.

"The RBNZ is most concerned when NZD strength departs from weaker domestic fundamentals," said Kymberly Martin, a strategist at Bank of New Zealand. "Currently the pick-up in the NZD can partly be justified by the recent strong pick-up in NZ’s terms of trade, driven by a 45 percent increase in NZ dairy prices."

Whole milk powder prices at the latest GlobalDairyTrade auction rose to their highest level since October, giving investors confidence New Zealand's biggest export commodity is recovering. New Zealand's central bank has built in at least one more reduction in the 2 percent official cash rate as it tries to lift consumer prices which have been stagnant for almost two years, and has projected the cash rate could fall to about 1 percent if the currency doesn't depreciate.

The New Zealand dollar advanced to 55.83 British pence from 55.40 pence late yesterday. The kiwi rose to 97.03 Australian cents from 96.81 cents late yesterday after figures showed Australian second-quarter gross domestic product missed expectations, growing 0.5 percent in the three months ended June.

The local currency rose to 75.74 yen from 75.36 yen and gained to 4.9690 yuan from 4.9536 yuan. It increased to 66.25 euro cents from 66.02 cents.

BusinessDesk.co.nz

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