Wednesday 10th July 2019
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The New Zealand dollar fell as the greenback gained ahead of US Federal Reserve chair Jerome Powell’s congressional testimony.
The kiwi was trading at 65.97 US cents at 5pm versus 66.05 US cents at 8am in Wellington. The trade-weighted index was at 72.45 versus 72.53.
Powell is scheduled to testify at the House Financial Services Committee later in the global trading day and at Senate Banking Committee on Thursday in the US.
The US Federal Reserve will also publish minutes from its June meeting early tomorrow New Zealand time.
Markets will be looking for any clues on the future direction of interest rates. While a 25-basis point rate cut is still fully priced for the July 30-31 meeting, strong jobs data saw expectations shift from a 50 basis point cut, which has given the US dollar a lift over recent sessions.
OMF Treasury Manager Stuart Ive said that if Powell isn’t as bearish on the economy as expected the “US dollar could have a run here.”
Kiwibank trader Mike Shirley said the kiwi did see one significant dip on the day of around 30 points and it looked like someone had executed a large trade, selling down their position.
“There’s talk out there that it was something to the tune of half a billion,” he said.
Shirley said the weaker-than-expected food price index may have also weighed on the kiwi. Food prices showed an annual rise of 0.5 percent in June and they fell 0.7 percent on the month.
The food price index accounts for about a fifth of the consumers price index, which is one measure the Reserve Bank uses to pursue its inflation target when setting interest rates.
Rates are currently at a record low 1.50 percent and investors are currently expecting two more 25 basis point rate cuts over the next few months given that annual inflation remains a tepid 1.5 percent.
“It was mildly negative and just set the kiwi drifting lower,” said Shirley.
However, Powell’s testimony will be the “tone setter for the kiwi and the US dollar and pretty much everything else,” he said.
The kiwi traded at 52.96 British pence from 52.99 pence at 8am, at 58.86 euro cents from 58.94, at 71.82 yen from 71.91, and at 4.5424 Chinese yuan from 4.5462.
It was unchanged at 95.32 Australian cents.
The New Zealand two-year swap rate was at 1.3242 percent from 1.3138 late yesterday, while the 10-year swap rate was at 1.7400 percent from 1.7125 percent.
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