Wednesday 17th July 2019
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The New Zealand dollar was little changed as global currency markets tread water after surprisingly strong US retail trade data cast doubt on how much appetite the Federal Reserve will have to cut interest rates.
The kiwi was trading at 67.11 US cents at 5:05pm in Wellington from 67.01 at 8am – well down from 67.32 at 5pm yesterday. The trade-weighted index was at 73.44 points from 73.30.
“It’s a bit like watching paint dry,” says Derek Rankin, the principal at Rankin Treasury Advisory, adding that trading in both the Australian and New Zealand dollars so far this year has been markedly less volatile than usual.
In the past five months the monthly trading range in the Australian dollar has been less than 3 percent, Rankin says.
The New Zealand dollar’s trading range year-to-date has been 7 percent, down from last year’s 13.6 percent range and the 28-year average of 16.7 percent.
Central banks around the world have either been cutting rates or are expecting to cut in the near future – the Reserve Bank of Australia cut its cash rate early this month and RBNZ cut its key rate in May.
There’s speculation that the European Central Bank will cut rates soon, just as the Fed is still expected to cut rates at the end of the month, notwithstanding the 0.4 percent rise in US retail sales in June, double what the market had been expecting.
“Cutting interest rates is a zero-sum game around the world. Those that have cut are finding their currencies aren’t reacting in the usual way,” Rankin says.
The kiwi, for example, is now at the same level against the US dollar that it began this year, despite the RBNZ’s rate cut.
US President Donald Trump's views on trade and currencies are also a factor, Rankin says.
“The backdrop to everything at the moment is Trump’s comments that the US dollar is over-valued and that the Chinese and Europeans are manipulating their currencies and that the US should do the same.”
The US doesn’t usually intervene in currency markets. Treasury Secretary Steven Mnuchin and the US National Economic Council director Larry Kudlow are both against currency market intervention, but Trump could over-rule them, Rankin says.
The New Zealand dollar was at 95.69 Australian cents versus 95.54, at 54.03 British pence from 53.99, at 59.82 euro cents from 59.76, at 72.60 yen from 72.53, and at 4.6180 Chinese yuan from 4.6058.
The New Zealand two-year swap rate edged down to 1.3297 percent from 1.3341 yesterday while the 10-year swap rate fell to 1.8000 percent from 1.8100.
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