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NZ dollar gains as Trump's policy moves weigh on greenback

Tuesday 31st January 2017

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 The New Zealand dollar gained as US President Donald Trump's latest policy decisions unsettled markets and weighed on the greenback.

The kiwi rose to 72.86 US cents as at 5 pm in Wellington from 72.65 cents late yesterday. The trade-weighted index rose to 79.64 from 79.46.

Markets were jittery in Asia after acting US Attorney-General Sally Yates was removed from the role by the White House. According to Reuters, Yates said late on Monday that the Justice Department would not defend in court Trump's directive that put a 120-day hold on allowing refugees into the country, an indefinite ban on refugees from Syria and a 90-day bar on citizens from Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen. Hours later, she was fired. 

"The US dollar is weaker because of President Trump's behaviour," said Imre Speizer, senior market strategist at Westpac Banking Corp.  "It just adds to the concerns and risks therefore associated with US dollar-denominated assets."

The TWI is well above the average 76.4 level the Reserve Bank projected in its November monetary policy statement and its strength will be of concern to the bank, which is due to make an interest rate decision next week. Economists say the bank is probably done with cutting rates and its next move will be a hike.  

While RBNZ Governor Graeme Wheeler can say he's finally got inflation back in the 1 percent to 3 percent band "the high TWI will make it hard going from here," Speizer said.  

Looking ahead, markets will be focused on domestic jobs data on Wednesday, which may show the jobless rate held below 5 percent. Speizer said investors will then focus their attention on the US Federal Open Market Committee meeting, which isn't expected to change US interest rates but may indicate when it next plans to hike, as well as US payrolls figures for January. Otherwise, investors will continue to keep a close eye on any comments from Trump. 

The kiwi traded at 96.29 Australian cents from 96.16 late Monday. It traded at 5.0111 yuan from 4.9974 yuan and at 68.11 euro cents from 67.70 cents. It traded at 58.24 British pence from 57.76 pence late Monday. It dipped slightly against the safe-haven yen and was trading at 82.73 from 83.14 yen

New Zealand's two-year swap rate rose 1 basis points to 2.40 percent while the 10-year swaps rose 4 basis points to 3.54 percent.

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