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NZ dollar slips as investors beef up rate cut expectations

Thursday 7th November 2019

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The New Zealand dollar fell as expectations increased that the Reserve Bank will move to cut rates next week.

The kiwi was trading at 63.47 US cents at 5pm in Wellington versus 63.66 cents at 8am. The trade-weighted index was at 70.02 from 70.17.

Market pricing shifted from a 50 percent chance of a rate cut to a 70 percent chance after data yesterday showed the seasonally adjusted unemployment rate rose to 4.2 percent in the three months ended Sep. 30, from 3.9 percent in the June quarter.

Since yesterday’s unemployment data “the market has been increasing the bets on an interest rate cut next week,” said Martin Rudings, a senior dealer at OMF.

The market had been largely split on whether or not the central bank would cut rates by 25 basis points to a record low 0.75 percent. Now “the consensus is they will go,” he said.

“Our view is it will be the path of least regret for the RBNZ and the employment numbers just shift the needle towards a cut,” said Rudings.

He also noted the RBNZ can’t be accused of “over-doing things when all they are going to do is drop the rate to the same as Australia.”

Rudings also said the kiwi continues to be weighed by news that an interim trade deal between the US and China might be delayed until December.

“The market got a bit upset by that. It’s pretty messy out there,” he said.

If the kiwi were to break 63.30 US cents, it might head back down toward 62.10 cents. “The kiwi is in a bit of trouble going into a rate cut next week,” he said.

The kiwi was trading at 92.43 Australian cents from 92.54, at 49.42 British pence from 49.55, at 57.31 euro cents from 57.51, at 68.96 yen from 69.33 and at 4.4533 Chinese yuan from 4.4549.

The two-year swap rate was at a bid price of 1.0203 percent from 1.0385 percent yesterday while 10-year swaps were at 1.4550 percent from 1.5025 percent.



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