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NZ dollar buoyed by optimism on US-China trade relations

Tuesday 29th October 2019

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The New Zealand dollar rose as global risk appetite improved on the prospect of thawing trade relations between the US and China. 

The kiwi was trading at 63.67 US cents at 5pm in Wellington versus 63.45 cents at 8am. The trade-weighted index was at 70.37 from 70.16.

Risk appetite improved on reports that US and Chinese officials are “close to finalising” some parts of a trade agreement. 

According to Reuters, Washington and Beijing are working to agree on the text for a 'Phase 1' trade agreement announced by US President Donald Trump on Oct. 11. Trump has said he hopes to sign the deal with China’s President Xi Jinping next month at the APEC summit in Chile.

The kiwi is “better on the day, in line with risk having rallied overnight,” said Mark Johnson, private client manager for OMF.

“Still, a degree of caution is warranted here as we get up to loftier heights but for the moment, it’s pushing higher,” he said.

The main event this week will be the US Federal Reserve’s interest rate decision there mid-week. “The market is pricing a rate cut and it would be stunned if that wasn’t delivered,” said Johnson.

“A lot will depend on whether the Fed might feel it has done enough.” The US dollar would rise if the Fed were to pare back expectations for future rate cuts, he said.

Johnson also noted that expectations for future rate cuts in New Zealand and Australia are also easing. He said investors are pricing in a 72 percent chance that New Zealand's central bank will cut rates, versus 88 percent a few days ago. In Australia, it has gone from 84 percent to around 60 percent.

“Markets are just pushing back a little bit,” he said.

The New Zealand dollar was at 92.93 Australian cents from 92.72, at 49.56 British pence from 49.31, at 57.38 euro cents from 57.15, at 69.37 yen from 69.15, and at 4.4931 Chinese yuan from 4.4847. 

The two-year swap rate rose to 0.9712 percent from 0.9414 percent late yesterday while 10-year swaps increased to 1.42 percent from 1.35 percent.


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