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NZ dollar headed for 1.3% weekly gain on expectations of a Fed rate cut

Friday 19th July 2019

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The New Zealand dollar is heading for a gain of almost a US cent over the week amid expectations the Federal Reserve will cut interest rates at the end of the month.

The kiwi was trading at 67.77 US cents at 5pm in Wellington from 67.82 at 7:50am, up from 66.90 in New York last Friday. The trade-weighted index was at 73.89 points from 73.93.

Early today, comments from New York Federal Reserve President John Williams that central banks should “take swift action when faced with adverse economic conditions” and that they shouldn’t “keep your powder dry” sparked a sharp sell-off of US dollars, propelling the kiwi to its high for the week at 67.91 US cents.

Mike Shirley, a dealer at Kiwibank, says late in the morning the Fed “clarified” that Williams “was talking generally. He wasn’t referring to what the Fed should be doing.”

The domestic currency fell as low as 67.63 US cents after a New York Fed spokesman said Willams had given “an academic speech on 20 years of research. It was not about potential policy actions” at the upcoming open market committee meeting.

The kiwi then spent the rest of the day drifting higher, Shirley says.

With no data scheduled in the US overnight or early next week, currency markets are likely to be driven by headlines, he says.

In particular, developments in Britain’s Brexit woes have meant the British pound has been quite volatile this week, he says.

Earlier today, Britain’s parliament voted in favour of an amendment that will make it harder for the incoming Prime Minister, most likely Boris Johnson, to suspend parliament before a Brexit deal, reducing the odds of a no-deal Brexit.

And the European Union’s Brexit negotiator Michel Barnier said the bloc is ready to work on alternative arrangements for the Irish border issue.

Keeping the border between the Irish Republic and Northern Island open has been a key stumbling block in the Brexit talks amid fears that re-establishing a customs post at the border could re-ignite Ireland’s “troubles.”

The New Zealand dollar was trading at 54.02 British pence from 53.99 this morning and 53.11 a week ago.

It was at 95.88 Australian cents from 95.87, at 60.18 euro cents from 60.10, at 72.89 yen from 72.70, and at 4.6571 Chinese yuan from 4.6625.

The New Zealand two-year swap rate edged up to 1.3248 percent from 1.3190 yesterday while the 10-year swap rate fell to 1.7600 percent from 1.7625.

(BusinessDesk)

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