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NZ dollar drops to 15-month low vs Canadian dollar on rate hike, falls vs greenback

Thursday 7th September 2017

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The New Zealand dollar dropped to a 15-month low against the Canadian dollar after the Bank of Canada unexpectedly hiked its benchmark rate, and declined against the greenback and the euro.

The kiwi fell to 87.90 Canadian cents as at 8am in Wellington, the lowest since May 2016, from 89.57 cents late yesterday. It fell to 71.90 US cents from 72.25 cents yesterday.

The Canadian dollar soared, reaching a two-year high against the greenback, after the Bank of Canada raised its overnight lending rate by 25 basis points to 1 percent, saying the increase was warranted given an unexpectedly strong second quarter of economic growth, surprising some economists who had expected it to wait until October. The kiwi fell against the US dollar after US President Donald Trump agreed a deal with congressional leaders including Democrats to extend the US debt limit until Dec. 15.

The Canadian rate hike "surprised the market with respect to timing," said Jason Wong, currency strategist at Bank of New Zealand. The Bank of Canada "tried to hose down expectations of further tightening by citing risks including continued excess capacity, subdued wage and price pressures, geopolitics, the higher Canadian dollar and elevated household indebtedness, but this didn’t prevent the CAD surging further ahead." 

The greenback strengthened after reports of Trump's deal, which would avoid a default on US government debt if it is approved by the Republican-led Congress and would ensure relief funding was available for victims of Hurricane Harvey. Meanwhile, Hurricane Irma is bearing down on Florida.

The greenback rose sharply "on news that President Trump and the Democrats had agreed on kicking the debt ceiling can a short way down the road," said Sharon Zollner, senior economist at ANZ Bank New Zealand. Also helping the US dollar was a gain in the US August ISM non-manufacturing composite index, she said.

In other US news, Federal Reserve Vice Chair Stanley Fischer announced he will step down in October. With no economic news due out in New Zealand today, traders may watch for July retail sales and trade in Australia.

The kiwi fell to 89.93 Australian cents from 90.52 cents yesterday when figures showed the Australian economy grew 0.8 percent in the second quarter, accelerating from a 0.3 percent pace in the first quarter although undershooting expectations for a 0.9 percent gain.

The trade-weighted index dropped to 74.98 from 75.42 late yesterday. 

The kiwi traded at 78.59 yen from 78.53 yen yesterday and slipped to 60.35 euro cents from 60.64 cents. It fell to 55.13 British pence from 55.43 pence and declined to 4.6900 yuan from 4.7226 yuan.


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