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NZ dollar falls vs Aussie on strong Australian GDP; Trump buoys greenback

Wednesday 1st March 2017

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The New Zealand dollar fell against the Australian dollar after strong economic growth figures across the Tasman and lost ground against the greenback as the market seemed to shrug off a lack of detail in US President Donald Trump's speech to the Joint Session of Congress. 

The local currency fell to 93.23 as at 5pm Australian cents from 94.02 as at 8am and 93.47 cents late yesterday after Australia's economy grew 1.1 percent in the three months through December, beating economists forecasts.

Gross domestic product rose 2.4 percent from a year earlier. "The decent rebound in real GDP in the fourth quarter doesn’t just dash any lingering fears that Australia was in a recession, but it also boosts hopes that the surge in commodity prices will trigger a rapid recovery," said Paul Dales, chief Australia and New Zealand economist for Capital Economics.

The New Zealand dollar also fell to 71.45 US cents as at 5pm in Wellington from 72.17 US cents as at 8am and 71.82 cents late yesterday. 

Ross Weston, FX trader at Kiwibank, said he thought the market would have been disappointed by Trump's speech as it was "lacking detail" such as solid figures, dates, and time frames. Still, "the US dollar has certainly found some favour," he said, adding the catalyst could be the increase in defence spending and proposed legislation that would produce a US$1 trillion investment in US infrastructure.  

Weston said a sustained break below the 71.30/71.40 US cents area would open up a significant downside. 

Domestically, he said investors will be watching for a speech early tomorrow from Reserve Bank governor Graeme Wheeler. In an interview with Politik published today, Wheeler reiterated concern about the potential impact of Trump's 'America First' trade policies on New Zealand.

"The balance of risk in the global economy is on the downside," Wheeler told Politik. "But the greatest source of uncertainty relates to the US Administration policies in respect to it's 'American First' platform."

Today's speech by Trump won't have allayed those concerns as the US President quoted former US President Abraham Lincoln, who warned that the "abandonment of the protective policy by the American Government [will] produce want and ruin among our people" according to a prepared copy of the speech.

The Financial Times and Wall Street Journal today reported the Trump administration plans to ignore rulings by the World Trade Organisation that it sees as contrary to US sovereignty, citing a leaked report due to be sent to Congress on Wednesday. 

New Zealand's trade-weighted index fell to 77.90 from 78.11.

The kiwi was trading at 57.77 British pence from 57.78 pence and 67.77 euro cents from 67.84 cents. It was at 81.02 yen from 80.90 yen and at 4.9143 from 4.9341 yuan.

The two-year swap rate fell 2 basis points from its opening level to 2.3 percent while 10-year swaps rose 3 basis points to 2.46 percent.

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