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NZ dollar steady as market digests PBOC moves, Powell speech

Monday 27th August 2018

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The New Zealand dollar was little changed as investors digest efforts by the People's Bank of China to arrest the slide in the yuan and Federal Reserve chair Jerome Powell's latest speech

The kiwi traded at 66.87 US cents at 5pm in Wellington from 66.82 cents at 8am and 66.90 cents on Friday in New York. The trade-weighted index was at 72.20 from 72.22 last week.

The yuan hit a two-and-a-half-week high against the US dollar on Monday when PBOC set the day's midpoint at a stronger-than-expected level after reintroducing the so-called counter-cyclical measure to help stabilise the currency. The tool essentially reasserts a heavier hand in setting the currency’s value, something the PBOC had eased back on, leading to a 10 percent decline in the yuan against the greenback between April and mid-August.   

The move comes after US President Donald Trump accused China of weakening the yuan to help soften the impact of trade tariffs, and was seen as a bid to stem some of those concerns. 

News that Powell reiterated that US interest rate increases are likely to be gradual Friday at the annual central bankers' forum in Jackson Hole, Wyoming also helped improve risk appetite.

Still, Martin Rudings, senior foreign exchange dealer at OMF, said there is a risk the US dollar begins to strengthen again given Powell's message was largely unchanged. Also, "the market is pretty much at the top of the range for euro, Aussie and kiwi, so I am looking for the US dollar to re-assert itself."  

Domestically, he said investors will be watching for an economic speech from Prime Minister Jacinda Ardern early Tuesday, followed by a business confidence survey later in the week. 

The kiwi may find some support if news that bank mortgage lending to higher risk loans is creeping back adds to the view that a rate cut in New Zealand is unlikely, despite the central bank saying it is still on the table. Lending to non-investors with loan-to-value ratios above 80 percent lifted to 10.2 percent of total lending in July versus 8.6 percent in June.  

The LVRs have been in place since 2013 and were imposed to discourage banks from extending credit to riskier borrowers. It eased them at the beginning of this year as housing market pressures showed signs of abating. Currently, only 15 percent of new loans to owner-occupiers can have deposits of less than 20 percent and only 5 percent of loans to property investors can have deposits of less than 35 percent.

The kiwi traded at 91.32 Australian cents from 91.34 cents last week. 

The local currency rose to 4.5558 Chinese yuan from 4.5512 yuan last week and traded at 74.31 yen from 74.42 yen. It was little changed at 57.55 euro cents from 57.50 cents last week and edged down to 52.03 British pence from 52.09 pence.

New Zealand's two-year swap rate was unchanged at 2.02 percent and 10-year swaps were unchanged at 2.85 percent.


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