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NZ dollar stalled awaiting Brexit, trade developments

Thursday 4th April 2019

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The New Zealand dollar is little changed as investors sit on their hands awaiting outcomes from the United States-China trade talks and the latest tortuous Brexit manoeuvres.

The kiwi was trading at 67.85 US cents at 5pm in Wellington from 67.83 at 8am; the trade-weighted index was at 73.55 points from 73.52.

Derek Rankin, principal at Rankin Treasury, says the local market is caught between the Reserve Bank now looking to cut interest rates and New Zealand commodity prices, particularly dairy prices, holding up well.

ANZ Bank figures out yesterday showed prices of New Zealand’s commodities lifted 1.4 percent in March and were 2.5 percent higher than a year ago in local currency terms.

Dairy prices gained 2.5 percent in March but other commodities also rose, including beef, up 2.9 percent, and international forestry prices, up 0.4 percent.

“Generally speaking, our commodity numbers are looking quite good and our interest rate differentials to the rest of the world still look quite good,” Rankin says.

Apart from the impact of the Reserve Bank’s bombshell change of stance last week, liquidity and volume have been low, he says.

While the Reserve Bank of Australia didn’t change its stance last Tuesday, Rankin says that with Australia’s Federal Budget coming out that night and an election on the way, its hands were tied. The election is expected mid-May, although Prime Minister Scott Morrison has yet to name the date.

“It’s unlikely that they will cut interest rates in the teeth of an election,” Rankin says. In addition, the Liberal-led coalition’s budget was expansionary. If Australia’s government changes to a Labor-led one, fiscal policy is likely to be even more expansionary.

“Fiscal policy is going to do a lot of the work” in trying to revive Australia’s economy, he says.

With some economists now predicting a New Zealand rate cut on May 8 when the next monetary policy statement is due, it’s possible that monetary policy in New Zealand and Australia could diverge, Rankin says.

The New Zealand dollar was trading at 95.29 Australian cents from 95.31.

The latest news on Brexit is that Britain’s parliament finally found something they could vote for: by a one-vote margin, MPs voted to force Prime Minister Theresa May to seek another delay to Brexit, currently scheduled for April 12.

The kiwi was trading at 51.51 British pence from 51.55 and at 60.35 euro cents from 60.32.

And US and Chinese officials continue to haggle over tariffs as talks resumed in Washington this week.

The New Zealand dollar was trading at 75.56 Japanese yen from 75.59 and at 4.5555 Chinese yuan from 4.5519.


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