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NZ dollar headed for 1.5% weekly gain on improved global outlook

Friday 11th January 2019

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The New Zealand dollar is headed for a 1.5 percent weekly gain after soothing comments from the Federal Reserve and signs of progress in US-China trade talks reduced fears of sharply slowing global growth.

The kiwi was trading at 68.06 US cents at 5pm, from 67.87 cents late yesterday and 67.02 cents this time a week ago. The trade-weighted index was at 73.46 from 73.29.

BNZ, which is picking the kiwi dollar to end 2019 at 70 US cents, said slower global growth this year is to be expected, but that is a long way from the deep downturn some investors had been picking late last year.

“If anything, pricing so far for 2019 suggests that risk assets might have overshot to the downside late last year, pricing in too much pessimism about the economic outlook,” senior markets strategist Jason Wong said in an outlook paper today.

“The New Year has begun with higher global equity markets, higher global rates, higher commodity prices and stronger emerging market and commodity currencies.”

Equity markets, and the kiwi, gained this week after Federal Reserve chair Jerome Powell last Friday affirmed his confidence in the US economy but signalled the central bank would take a more patient view on further rate rises this year.

Last night, he told the Economic Club of Washington DC that the US economy is still “solid” and that his principal concern is the risk of a global slowdown.

China’s economy has slowed, he said, but authorities there have taken repeated actions to support growth and “the most likely baseline for China is another year of solid growth.”

Signs of progress during an extended three-day session of trade talks between Chinese and US officials in Beijing earlier this week also emboldened investors.

BNZ said the 90-day truce declared in December in the two countries’ trade war had already reduced some of the risk to the global economy.

It expects an agreement around March, but also noted that tensions will remain, given China’s increasing challenge to US dominance.

“Tensions are likely to linger for years to come but the silly policy of imposing silly tit-for-tat tariffs is likely to draw to a close, significantly reducing a risk factor that has been overhanging the global economy and markets for some time,” Wong said.

The dearth of domestic data this week has left investors focused offshore for leads. The next the major data are US December CPI numbers due overnight.

Stats NZ data today showed dwelling consents fell 2 percent in November on a seasonally-adjusted basis, having risen 1.4 percent in October. On a trend basis, the latest numbers increased 1.9 percent.

Westpac, which expects a further pick-up in residential construction this year, was untroubled by the decline, which it said was mostly due to a reduction in the volatile multiple dwelling component of the data.

In Australia, data showed retail sales in November were slightly stronger than expected, rising 0.4 percent on a seasonally-adjusted basis. They were 2.8 percent higher than a year earlier.

The New Zealand dollar is trading at 94.45 Australian cents from 94.41 late yesterday. It was at 73.70 yen from 73.17, at 53.33 British pence from 53.03, at 59.05 euro cents from 58.65, and at 4.5954 Chinese yuan from 4.6052.

The New Zealand two-year swap rate ended the session at 1.9233 from 1.9139 yesterday; the 10-year rate rose to 2.6225 from 2.6100.


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