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NZ dollar nudges higher ahead of key Brexit vote

Tuesday 15th January 2019

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The New Zealand dollar rose a little after somewhat better-than-expected business sentiment data but investors’ main focus is the key vote on British Prime Minister Theresa May’s Brexit plan due 8am tomorrow New Zealand time.

The kiwi was trading at 68.38 US cents at 5pm in Wellington from 68.23 at 8.30am. The trade-weighted index was little changed at 73.78 points from 73.73.

The currency did appreciate after the New Zealand Institute of Economic Research's quarterly survey of business opinion showed net pessimists fell to 18 percent in the December quarter from 28 percent three months earlier.

“But we’re talking about 20 points on the entire day so it hardly set the world on fire,” says Mike Shirley, a dealer at Kiwibank.

The next potential market mover is the outcome of the latest GlobalDairyTrade auction due overnight New Zealand time.

“That may add a little bit of local flavour to currency moves,” Shirley says.

At the last auction, the first for 2019, the headline index rose 2.8 percent, the third consecutive climb, amid a drop in supply. NZX dairy futures are indicating a further rise is likely.

But the event with the most market-moving potential is definitely the Brexit vote, Shirley says.

“All and sundry are expecting that vote to fail and the question is by how much it fails – it looks like it will be by the biggest margin in a century. It’s not a record you would particularly want to hold,” he says.

But whatever the outcome, it will only raise a whole host of new questions, such as whether there will be vote of no confidence in May’s leadership and what happens next with Brexit.

“This is just the initial domino that’s going to be pushed,” Shirley says.

Bloomberg is reporting that at least 70 of May’s Conservative Party members, as well as sometime allies in the Democratic Unionist Party, have pledged publicly to join the opposition Labour Party in voting down her Brexit plan.

That could translate into a margin of defeat of more than 150 votes, the largest in more than a century. Even if some abstain, a defeat by more than 100 votes would be the worst since 1924.

If the margin of defeat turns out to be less than 60 votes, EU officials may look at fresh ways of making the agreement more palatable, Bloomberg said.

The New Zealand dollar was 53.00 British pence, unchanged from this morning.

Against the Australian dollar, the kiwi rose to 94.77 cents from 94.75, to 74.23 yen from 73.80, and to 59.53 euro cents from 59.49. It fell to 4.6158 Chinese yuan from 4.6170.

The New Zealand two-year swap rate fell to 1.8848 percent from 1.8850 percent yesterday; the 10-year swap rate rose to 2.5800 from 2.5780 percent.


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