NZ dollar heads for 0.7% weekly gain on upbeat employment figures, new Fed chair

Friday 3rd November 2017

The New Zealand dollar is heading for a 0.7 percent weekly gain against the greenback as strong domestic jobs figures bolstered the local outlook and as traders questioned whether proposed US tax cuts will go ahead and rates will rise as fast.

The kiwi traded at 69.20 US cents as at 5pm from 69.22 cents yesterday, and up from 68.79 US cents last Friday in New York. The trade-weighted index was at 73.39 from 73.22 yesterday.

The US dollar fell through the week on news dovish candidate Jerome Powell will chair the Federal Reserve and on concerns that US President Donald Trump will struggle to pass tax cuts. Domestically, the kiwi was buoyed when jobs data was better than expected, but ANZ Bank New Zealand chief economist Cameron Bagrie said the currency is now "moving sideways".

Bagrie said he expects the kiwi to stay under pressure due to political uncertainty, and after the fall in business confidence "we will be watching next month's numbers with a lot of attention because if we start to see weakness in business confidence transfer into broader economic indicators, that will be currency negative," he said.

This week's ANZ Business Outlook survey showed business confidence fell to a net 10 percent of firms negative about the year ahead, from a net zero reading with as many pessimists as optimists in September: "You just want the business sector to be continuing as if its business as usual, but unfortunately in the eyes of business, it doesn't look like business as usual," Bagrie said.

Investors will be watching for US employment later today. The Labor Department’s payrolls report is expected to show growth of 303,000 jobs in October, compared to a drop of 40,000 the month before. Total non-farm employment is expected to have increased by 312,000, according to economists polled by Reuters. Given those expectations the news may already be "baked in" to the currency and the US dollar might not get much of a lift, ANZ's Bagrie said.

Looking ahead to next Thursday's monetary policy review by the Reserve Bank, Bagrie said he expects rates to stay on hold. All 16 economists polled by Bloomberg predict the central bank will keep the official cash rate at 1.75 percent. Beyond that, only one of 12 expects a 25 basis point lift in February versus the median that sees rates on hold until the fourth quarter of 2018. The OCR has been on hold since November 2016 when it was cut by 25 basis points.

Bagrie said the new government's fiscal policy is going to be relevant to monetary policy "but we still don't have an awful lot of information regarding how much spending is going to be down the pipeline, how the labour market is going to react," he said. "There are a lot of plans but at this stage, they are plans as opposed to something concrete."

The kiwi climbed to 52.95 British pence from 52.10 pence late yesterday after the Bank of England raised interest rates for the first time in more than 10 years but said further hikes would be gradual, a more dovish view than the market was expecting. It was at 59.37 euro cents from 59.38 cents.

The local currency rose to 90.04 Australian cents from 89.59 cents yesterday after weaker-than-expected retail sales across the Tasman. It increased to 4.5815 yuan from 4.5664 yuan, and edged up to 78.92 yen from 78.80 yen yesterday.

New Zealand's two-year swap rate was unchanged at 2.15 percent and 10-year swaps fell 4 basis points to 3.10 percent.

(BusinessDesk)

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