NZ dollar gains vs. Aussie as Chinese manufacturing keeps shrinking

Monday 1st February 2016

The New Zealand dollar gained against its trans-Tasman counterpart after Chinese manufacturing gauges showed industrial production in the world's second biggest economy was still shrinking last month, and ahead of the Reserve Bank of Australia policy review tomorrow.

The kiwi rose to 91.64 Australian cents at 5pm in Wellington from 91.28 cents on Friday in New York. The local currency traded at 64.75 US cents from 64.77 cents at 8am, and 64.69 cents last week.

Both the official Chinese purchasing managers' index and Caixin manufacturing PMI were below 50 in January, indicating production was contracting in China. That weighed on the Australian dollar, which tends to react more to Chinese data than the kiwi due to the nation's large hard commodities export exposure, ahead of tomorrow's RBA meeting. Analysts don't expect Australia's central bank will move the 2 percent target cash rate, though the recent strength in the currency may attract rhetoric to try and talk down the Aussie.

"China is still going backwards, albeit in a mixed picture from that data," said Stuart Ive, senior foreign exchange dealer at OMF in Wellington. "The kiwi/Aussie has got a little bit of a boost ahead of the RBA, and with that the Aussie gets more affected by Chinese data than the New Zealand dollar."

Ive said the kiwi will be following international news until the GlobalDairyTrade auction overnight Tuesday and Reserve Bank of New Zealand governor Graeme Wheeler's first public speech of the year on Wednesday. Synlait Milk today joined Fonterra Cooperative Group, Open Country Dairy and Westland Milk Products in lowering its forecast payout to farmers for the current season.

A BusinessDesk survey of six currency analysts predicts the kiwi will trade between 63.50 US cents and 66.40 cents this week, with three picking it will gain, two expecting a fall, and one saying it will be little changed.

Government data today showed New Zealand continued to attracted record net migration and tourist arrivals in December.

New Zealand's two-year swap rate fell three basis points to 2.61 percent at 5pm in Wellington, and 10-year swaps declined four basis points to 3.36 percent.

The local currency climbed to 78.52 yen from 78.29 yen on Friday in New York as investors scaled back their holdings in that currency after the Bank of Japan last week adopted negative interest rates.

Ive said investors will be closely watching how other central banks respond to the move, especially whether the People's Bank of China will cut interest rates again. The kiwi gained to 4.2602 Chinese yuan from 4.2535 yuan on Friday in New York.

The local currency was little changed at 59.62 euro cents from 59.68 cents last week, and almost unchanged at 45.41 British pence from 45.40 pence. The trade-weighted index fell to 71.20 from 71.49 last week.

(BusinessDesk)

BusinessDesk.co.nz

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