Monday 1st July 2019
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The kiwi dollar rose against its trans-Tasman counterpart ahead of the Reserve Bank of Australia’s rate decision tomorrow but the gains were tempered by weak data out of China.
The kiwi was trading at 95.76 Australian cents at 5pm in Wellington from 95.54 cents at 8am. It was at 67.09 US cents from 67.19 cents this morning and the trade-weighted index was at 73.09 from 73.22
The Reserve Bank of Australia is widely expected to cut its cash rate by 25 basis points to a new record low of 1 percent tomorrow. Another 25 basis-point cut is expected before the end of the year.
While New Zealand’s central bank is also expected to follow suit, the next local monetary policy decision is not until August and the rate here is currently 1.50 percent.
The kiwi lost some ground against the greenback after news the Caixin China General Manufacturing Purchasing Managers’ Index fell to 49.4 in June from 50.2 in May. The group cited trade tensions as weighing on new orders.
The reading was below 50.0 - the threshold that separates an expansion in manufacturing activity from a contraction - for the first time in four months.
“The latest survey data suggest that China’s economy is coming under renewed pressure as a result of cooling foreign demand and waning fiscal support, which should trigger further monetary easing,” Capital Economics said.
It noted that the official manufacturing PMI – published on Sunday – was also weaker than expected at 49.4.
China’s activity weighs on the kiwi as the Asian nation is currently this country's largest trading partner.
While the kiwi is holding above 67 US cents, ASB Bank noted economic news this week may present "something of a speed bump."
It expects another 2 percent fall in whole milk powder prices at Tuesday night’s Global Dairy Trade auction and notes tomorrow’s NZIER's Quarterly Survey of Business Opinion index “also looks set to remain soft, if recent ANZ business confidence readings are anything to go by.”
Last week, ANZ Bank's business outlook survey showed a net 38.1 percent expect general business conditions will deteriorate during the coming year, compared with 32 percent in May and 37.5 percent in April.
ASB, however, expects the kiwi to largely track sideways in the near term.
“Globally, we suspect the USD will remain soft as market participants turn their mind to the July FOMC meeting. We expect the Fed to lower interest rates 25bps at this meeting and to deliver a total of 100bps of cuts by mid-2020,” it said.
The New Zealand dollar was trading at 52.81 British pence from 52.89, at 59.10 euro cents from 59.12, at 72.59 yen from 72.65, and at 4.5842 Chinese yuan from 4.6119.
The New Zealand two-year swap rate was at 1.3451 percent from 1.3407 late Friday, while the 10-year swap rate was at 1.7900 percent from 1.7750 percent.
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