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NZ dollar may fall from a four-month high as US returns from holiday

Tuesday 16th January 2018

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The New Zealand dollar may fall from a near a four-month high when US investors from holiday and bring an end to a bout of sharp greenback-selling on optimism about the euro's prospects. 

The kiwi traded at 72.91 US cents as at 5pm in Wellington versus 73.02 cents at 8am, and up from 72.66 cents yesterday. The trade-weighted index advanced to 75.07 from 74.85.

The local currency rode on the coat-tails of the euro, which shot up overnight after European Central Bank rate-setter Ardo Hansson said the central bank could end its bond purchase scheme in one go after September if the economy and inflation develop as expected and after data showed the trade surplus in the 19-country euro area rose to its highest level in eight months. 

Martin Rudings, senior dealer foreign exchange at OMF in Wellington warned the overnight move came in very thin markets with US markets closed for the Martin Luther King Jr holiday. 

"It wouldn't surprise me to see a bit of a push back and a rally in the US dollar" given how far the greenback has fallen, he said. "The US dollar index is sitting on support and the kiwi, Aussie and euro look at bit stretched and overbought," he said.  

The kiwi did take a mild knock after a survey from the New Zealand Institute of Economic Research showed that businesses were gloomier in the December quarter when firms turned pessimistic for the first time in more than two years over the formation of a Labour-led government and what its policy may bring.  

Rudings said he expects the US dollar to continue being the main driver for the local currency. Investors will be watching the overnight GlobalDairyTrade auction with dairy futures pointing to a lift, which would typically bolster the kiwi, he said. "I think it will be positive auction tonight but the kiwi will go wherever the US dollar is taken," he said. 

The local currency traded at 59.47 euro cents from 59.55 cents yesterday and was unchanged at 52.88 pence. It was at 91.54 Australian cents from 91.49 cents yesterday and rose to 4.6848 Chinese yuan from 4.6666 yuan. The kiwi gained to 80.89 yen from 80.45 yen yesterday.

New Zealand's two-year swap rate was unchanged at 2.21 percent while the 10-year swap eased 1 basis point to 3.21 percent.


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