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NZ dollar little changed; Powell provides reasons to be dovish

Friday 11th January 2019

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The New Zealand dollar is treading water after US Federal Reserve chair Jerome Powell outlined the concerns which are making him more cautious about raising interest rates further.

The kiwi was trading at 67.80 US cents at 8.40am in Wellington from 67.87 at 5pm on Thursday. The trade-weighted index was at 73.33 points from 73.29.

Powell’s speech to the Economic Club of Washington DC “was the main event the market was waiting for” and the Fed chair provided further reasons for turning dovish, says Imre Speizer, currency strategist at Westpac.

“He’s changed his tone over the last couple of months and now he’s not sounding so upbeat,” Speizer said.

Powell said in his speech that his "principal worry" is global growth.

"If you look at Asia, Europe, you’re seeing slowing in growth. The question would be, how does that affect us?”

“The Chinese economy is slowing down. It’s showing up a lot in consumer spending, weak retail spending: everyone has seen the Apple news,” Powell said.

Earlier this month, Apple cut its revenue outlook for the first time in almost two decades and blamed slowing demand for iPhones in China. iPhones account for 64 percent of Apple’s sales and 20 percent of those sales happen in China.

Data released in China on Thursday showed that country’s Producer Price Index, which measures price increases before they reach the consumer, rose 0.9 percent in December compared with economists’ expectations of a 1.6 percent increase. It was the smallest increase since September 2016.

Speizer says Powell also highlighted the potential impact of the US partial government shutdown as President Donald Trump tries to force the Democrats to give him US$5 billion to build a wall on the border with Mexico.

Powell said government shutdowns aren’t usually a problem because they tend to be short-lived. The current shutdown is now in its 20th day. The longest ever shutdown was in 1995 when Bill Clinton was president. It lasted 21 days.

Speizer says local November building consents data due out at 10.45am are unlikely to be a market mover. Australian November retail sales due this afternoon could have an impact.

But he said the major data the market is awaiting are US CPI numbers for December due overnight New Zealand time.

The New Zealand dollar is trading at 94.35 Australian cents from 94.41 on Thursday, at 73.50 yen from 73.17, at 53.19 British pence from 53.03, at 58.97 euro cents from 58.65 and 4.6026 Chinese yuan from 4.6052.

(BusinessDesk)

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