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NZ dollar steady as Trump comes into focus, any gains may be capped this week

Monday 29th January 2018

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The New Zealand dollar was little changed ahead of US President Donald Trump's first State of the Union address this week, which may clarify the administration's view on the greenback and include currency-stoking comments on his long-mooted infrastructure package.

The kiwi traded at 73.33 US cents at 5pm in Wellington from 73.53 cents in New York on Friday. The trade-weighted index slipped to 74.60 from 74.71.

Trump's speech to the Congress, titled "Building a safe, strong and proud America" and scheduled for Wednesday morning Wellington time, will set out his priorities for jobs, infrastructure, immigration, trade and national security, Reuters reported a senior official as saying Trump has yet to detail his USD$1.7 trillion election pledge to invest in US infrastructure projects but that type of spending would likely have a more direct impact on US economic growth than his tax reform package and help underpin a US dollar index hovering near a four-year low.

"A significant infrastructure package would have a much higher multiplier effect in the economy than the tax package," said Robert Rennie, chief currency strategist at Westpac Banking Corp. Trump may also comment on the greenback.

Added to that, US figures this week may show the world's biggest economy is stacking on jobs, while Janet Yellen's last policy meeting as chair of the US Federal Reserve this week will likely see more optimism about growth prospects and interest rate hikes from the central bank, he said.

By contrast, data closer to home risks being a disappointment. The kiwi dollar fell last week after weaker-than-expected inflation figures and Australia's equivalent, out this week, is also at risk being on the low side, Rennie said. While the kiwi reached 74.38 US cents last week, "it doesn't feel like there's much activity much above 74 cents," he said.

The Federal Open Market Committee will conclude its two-day meeting on Wednesday, the last one with Yellen as chair before Jerome Powell takes over. While the FOMC is not expected to announce a rate hike on Wednesday, it is widely expected to raise its target rate during its March meeting. Meantime, US nonfarm payrolls probably grew by 180,000 jobs in the latest month while the unemployment rate fell to 4 percent, economists forecast.

The local currency traded at 90.62 Australian cents from 90.69 cents in New York on Friday. It fell to 4.63608 Chinese yuan from 4.6470 yuan, decreased to 59.08 euro cents from 59.18 cents and traded at 51.86 British pence from 51.915 pence. It traded at 79.72 yen from 79.87 yen last week.

New Zealand's two-year swap rate was unchanged at 2.17 percent while 10-year swaps rose 3 basis points to 3.24 percent.

(BusinessDesk)

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