NZ dollar TWI heads for 1.5% weekly gain on flat rate outlook, growth prospects

Friday 11th December 2015

The New Zealand dollar is heading for a 1.5 percent weekly gain on a trade-weighted basis after the Reserve Bank yesterday signalled rates would be unchanged for the next three years, with the local economy still likely to outperform its global peers.

The trade-weighted index rose to 73.36 at 5pm in Wellington from 72.26 on Friday last week, and was up from 73.02 yesterday. The kiwi is largely unchanged against the greenback on the week, trading at 67.47 US cents at 5pm from 67.44 cents on Friday in New York, recovering its losses in the lead-up to the Reserve Bank's announcement. It was little changed from 67.38 cents yesterday.

A BusinessDesk survey of nine analysts predicted the local currency would trade between 65 US cents and 69.25 cents this week. Five expected the kiwi to gain while four bet it would decline.

Reserve Bank governor Graeme Wheeler surprised some in the market by keeping the forecast track for the 90-day bank bill rate unchanged over the next three years, indicating he won't cut interest rates again. Wheeler lowered the official cash rate to 2.5 percent, having previously said he had one more cut up his sleeve, and made any future reductions dependent on the circumstances.

That leaves New Zealand's benchmark rate higher than many of its global peers, in an environment where the Bank of England seems unlikely to raise interest rates any time soon, while central banks in Europe and Japan continue to print money.

"Our growth looks pretty good on the world, our yield at 2.5 percent is now stable, and the outlook also looks pretty good on a global basis," said Sam Tuck, senior FX strategist at ANZ New Zealand in Auckland.

The Federal Reserve is the only major central bank poised to hike interest rates when the Federal Open Market Committee meets next week, though the level of anticipation in the market has seen it heavily priced in by traders, and there are fears the greenback might decline when the Fed goes.

"What direction the kiwi really drives to from here depends a lot on what the Fed does next week," ANZ's Tuck said. "Markets are very much net long US dollars - that is a known position - and looking a little bit nervous," he said, referring to the investment strategy of predicting an asset will appreciate.

Government data showed New Zealand food prices fell 0.2 percent in November, while bank surveys reported a pick-up in manufacturing activity and buoyant consumer confidence.

New Zealand's two-year swap rate rose four basis points to 2.77 percent at 5pm in Wellington, and 10-year swaps gained five basis points to 3.61 percent.

The local currency rose to 93.07 Australian cents from 92.31 cents yesterday, and advanced to 4.3509 Chinese yuan from 4.3381 yuan. It gained to 82.40 yen from 81.93 yen yesterday, and increased to 61.71 euro cents form 61.22 cents. It was little changed at 44.55 British pence from 44.44 pence yesterday.

BusinessDesk.co.nz

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