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NZ dollar holds gains as traders await US data, tariffs; 10-yr swaps hit 18-mth low

Monday 2nd July 2018

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The New Zealand dollar held gains against the greenback but stuck to a tight range ahead of a slew of events this week, including a raft of tariffs kicking in and key US data, such as the non-farm payrolls.

Ten-years swaps, meanwhile fell below 3 percent for the first time since late 2016 as investors see the Reserve Bank on hold for longer. 

The kiwi dollar traded at 67.70 US cents as at 5pm in Wellington from 67.72 cents as at 8:30am and 67.64 cents in late New York trading on Friday. The trade-weighted index rose to 72.41 from 72.21.

The kiwi held its gains after European Union leaders agreed to set up migrant processing centres and take collective responsibility for the flood of people from the Middle East and Africa heading and after US data was slightly subdued Friday. Events over the course of the week, however, could push it around. 

Among other things, investors will be keeping a close eye on trade developments after Canada imposed new tariffs on the US and as China's new tariffs come into force later in the week. 

Domestically, ANZ Bank New Zealand senior economist Phil Borkin said investors will be watching the New Zealand Institute of Economic Research's quarterly survey of business opinion tomorrow, which may show an ongoing slide in business confidence, in particular after sentiment hit a seven-year low in the ANZ survey last week. 

While trading will be fairly quiet this week - due to US Independence Day on July 4 - the nonfarm payrolls data due out Friday in the US will also garner interest, said Borkin. 

Robert Rennie, chief currency strategist at Westpac Banking Corp in Sydney, said recent data out of the US indicated that the "consumer really wasn't participating so much in the second quarter as may have been expected and as "we shift from 2Q to 3Q, it does feel as if the US dollar - at least on a G10 basis - is looking a bit more mature," which could see the kiwi get squeezed higher.  

The kiwi rose to 58.11 euro cents from 58.02 cents on Friday in New York.

The local currency rose to 91.73 Australian cents from 91.29 cents on Friday in New York and gained to 4.4932 yuan from 4.4732 yuan. It was at 74.96 yen from 74.84 yen and traded at 51.39 British pence from 51.30 pence.

New Zealand’s two-year swap rate was unchanged at 2.14 percent while 10-year swaps fell 2 basis point to 2.99 percent, marking the first time it's closed below 3 percent in more than 18 months as markets push back their rate hike expectations and even move to factor in the possibility of a rate cut. 

Last week the Reserve Bank kept the official cash rate at 1.75 percent and its comments have been viewed as more dovish. 


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