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NZ dollar falls on political jitters, Aussie CPI

Wednesday 25th October 2017

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The New Zealand dollar fell further against the greenback, weighed by ongoing political jitters and weaker-than-expected Australian inflation data.

The kiwi was trading at 68.88 as at 5:15 pm from 69.02 cents as at 8am in Wellington from 69.44 cents yesterday. The trade-weighted index dropped to 72.98 from 73.27 yesterday. 

Markets have been jittery since NZ First leader Winston Peters declared his support for a Labour-led government and news across the Tasman today didn't help the kiwi. Australian consumer prices rose by 0.6 percent in the third quarter and were up 1.8 percent from a year earlier, the Australian Bureau of Statistics said. Economists had expected consumer prices to rise 0.8 percent in the quarter and 2.0 percent from a year earlier. 

"It had another shunt lower, mostly on the back of the Aussie CPI numbers," said Ross Weston, a senior trader at Kiwibank. However, overall, the dollar looks "pretty resistant to a move lower," at least in the short term.

"It feels like the next move lower will be on the back of USD strength, which may well be waiting in the wings," he said. Markets will be watching to see if US President Donald Trump can get his tax reform plan over the line and who the next Federal Reserve governor will be, in particular, if the new governor is more hawkish than Janet Yellen, he said.

While it eased against the greenback it did pare some of its losses against the Aussie, lifting to 89.21 from 88.78 cents yesterday.  It fell to 4.5754 Chinese yuan from 4.6052 yuan. The kiwi declined to 58.59 euro cents from 59.01 cents, traded at 52.44 British pence from 52.52 pence, and fell to 78.48 yen from 78.69 yen yesterday.

Weston noted that swap rates were largely unchanged, something he said was "foolish" as the Reserve Bank of New Zealand is facing a tough monetary policy review in November, when it also has to provide forecasts. The trade-weighed-index is down around 3.5 percent since is September rate decision and "they have a real problem they haven't had in some time," he said.

For an extended period, the central bank has been grappling with solid economic growth and tepid inflation but now "they have signs that inflation is picking up and growth might be waning just a little bit." Coupled with that, it needs to consider the fiscal plans of the incoming government. "There is a lot to take into account," he said. 

New Zealand's two-year swap rate was unchanged at 2.16 percent and 10-year swaps rose 1 basis point to 3.20 percent.


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