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NZ dollar holds gains against Aussie despite fiscal stimulus

Thursday 4th July 2019

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The New Zealand dollar held its gains against the Aussie despite the Australian government joining the central bank in attempting to jump-start the economy there. 

The kiwi was trading at 95.27 Australian cents at 5pm from 95.29 cents at 8am. The kiwi was at 67.05 US cents from 67.04 this morning.

Lawmakers in Australia's minority senate agreed to tax cuts worth A$158 billion that will help to stimulate a sluggish economy. Today's agreement has cleared the way for a vote that should see low-to-middle income earners receive tax refunds worth up to A$1,080 over coming months,  the Wall Street Journal reported. 

Earlier this week, the Australian central bank lowered the cash rate to 1.00 percent from 1.25 percent and markets are pricing in at least one more cut this year as the RBA looks to reduce unemployment and lift inflation. 

While the kiwi remains firm against the Aussie, OMF foreign exchange dealer Martin Rudings said he is "bearish on the cross."

The RBA is "doing everything it can to avoid a recession," he said. The government is also coming to the rescue with tax cuts and possibly issuing an infrastructure bond "which will give the public the opportunity to invest in something that is probably a bit higher yielding than what current bank interest rates are."

The Australian Financial Review quoted Mark Delaney, chief investment officer at AustralianSuper - an industry fund with A$166 billion under management - as saying that Prime Minister Scott Morrison should borrow money in the bond market at 1 percent to fund infrastructure projects returning as much as 7 percent.

Rudings noted the kiwi is relatively steady against the US dollar and said "a lot of geopolitical risk in the market" is weighing on the greenback. He pointed to ongoing trade tensions and said the situation in Iran also has investors on edge. 

US President Donald Trump warned Iran in a tweet against making threats that "can come back to bite you like nobody has been bitten before" after Iran said it would begin to increase its enrichment of uranium. It is going beyond a limit set in a 2015 deal aimed at enabling the republic's nuclear generation ambitions while curtailing develop of weapons-grade uranium. 

Markets are also treading water ahead of key US payrolls data overnight Friday. Traders note, however, the US will be on holiday overnight for Independence Day and many participants will have taken Friday off, which could give rise to short-term volatility. 

The kiwi was at 53.27 British pence from 53.28. It was at 59.41 euro cents from 59.43, at 72.28 yen from 72.31 and at 4.6075 Chinese yuan from 4.6114

The trade-weighted index was at 73.16 from 73.18. 

The New Zealand two-year swap rate was at 1.3001 percent from 1.2938 late yesterday, while the 10-year swap rate was at 1.7150 percent from 1.7375 percent.

(BusinessDesk)

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