NZ dollar heads for 2.1% weekly gain against the greenback as market rethinks RBNZ rate cut

Friday 4th November 2016

The New Zealand dollar is heading for a 2.1 percent weekly gain against the greenback as better-than-expected local data has investors questioning whether next week's presumed interest rate cut will be the Reserve Bank's last for the time being.

The kiwi rose to 73.14 US cents at 5pm in Wellington from 71.67 cents on Friday in New York last week. It traded at 73.27 cents at 8am and was little changed from 73.08 cents yesterday. The trade-weighted index is heading for a 1.7 percent weekly gain to 78.35 from 77.07 last week, and was little changed from 78.29 yesterday.

The local currency has been a beneficiary of a weak greenback as investors weigh up which way next week's US Presidential election will fall in the close run race between Hillary Clinton and Donald Trump. At the same time, the Federal Reserve put off a rate hike at its latest meeting while New Zealand data has shown a labour market in good health and a strong recovery in dairy prices. That's prompted economists to pare back their expectations for the Reserve Bank's track for lower rates with next week's meeting now seen as the end of the current easing cycle.

"A rate cut next week had an 86 percent chance priced in - with all of the data coming out from New Zealand and Australia the market is paring back expectations for that cut," said Mitchell McIntyre, senior corporate FX dealer at NZForex in Auckland. "This is the biggest move we've seen in the kiwi for a long time."

Traders will be watching US non-farm payrolls for last month when it's released to gauge the strength of the world's biggest economy, though next week's election will continue to heighten volatility in the lead-up to New Zealand's Reserve Bank policy review.

The local currency edged down to 95.25 Australian cents from 95.32 cents yesterday after minutes to the Reserve Bank of Australia's monetary policy statement projected inflation to remain steady in the near-term, while acknowledging a stronger currency would complicate the economy's transition. The kiwi increased to 4.9456 Chinese yuan from 4.9381 yuan yesterday, and gained to 75.36 yen from 74.99 yen.

It fell to 58.65 British pence from 59.23 pence yesterday after a British High Court ruled Prime Minister Theresa May might need parliament to ratify the popular vote to leave the European Union, and as the Bank of England took on a neutral policy bias. The kiwi was increased to 65.92 euro cents from 65.70 cents yesterday.

New Zealand's two-year swap rate increased three basis points to 2.16 percent, and 10-year swaps gained two basis points to 2.83 percent.

BusinessDesk.co.nz

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