NZ dollar rebounds against the greenback following Japan election win

Tuesday 12th July 2016

The New Zealand dollar rallied against the greenback as a victory for Japan's ruling coalition led traders and investors to riskier assets, anticipating a move by Japan's central bank to continue its expansionary monetary policy to try to stimulate the country's lethargic economy.

The kiwi traded at 72.63 US cents at 5pm in Wellington from 72.19 cents at 8am and 72.78 cents yesterday. The trade-weighted index fell to 77.53 from 77.68 yesterday.

The New Zealand dollar has continued to gain against the yen throughout the day, trading at 74.82 at 5pm from 74.16 yen at 8am and 73.67 yen yesterday. It's now at its highest level since the outcome of the British referendum to leave the European Union became clear on June 24, which sent demand for the safe-haven currency soaring. Shinzo Abe's government has ordered a new round of public spending work and investors are now looking to see whether the Bank of Japan will expand monetary policy when it meets late this month.

"The election win has had a big impact on the yen and that's spilled over onto the New Zealand/US dollar exchange rate," said Michael Johnston, senior trader at HiFX in Auckland. "It's more money being pumped into the system and the kiwi has rallied in response."

Johnston said market chatter reflected a view that "the market had over-reacted to the Reserve Bank's announcement on Thursday" when a speech by deputy governor Grant Spencer flagged concerns about rising house prices, without announcing immediate measures to tackle the problem. That raised doubts the bank will move to cut interest rates again in August and sent the NZ dollar soaring to a 14-month high on Friday.

The kiwi declined slightly against the Australian dollar. A survey by the National Australia Bank of business confidence saw respondents say they were increasingly confident about the economic outlook, despite being questioned immediately after the vote for Brexit. Johnston said the current rate of 95.75 Australian cents, down from 96.19 yesterday remained "rarified air" and unjustifiable in the medium term, hitting exporters and the dairy industry.

The New Zealand dollar was down to 55.57 British pence from 56.16 pence following the outcome of the process to appoint Prime Minister David Cameron's successor. Home Secretary Theresa May has been selected and will take over later this week.

New Zealand's two-year swap rate increased one basis point to 2.22 percent and 10-year swaps were up 5 basis points at 2.54 percent.

The kiwi slipped to 4.8560 Chinese yuan from 4.8663 yesterday and was also down against the euro at 65.54 euro cents from 65.89 cents.

BusinessDesk.co.nz

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