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NZ dollar set for 2.3% weekly gain as greenback continues to falter

Friday 16th February 2018

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The kiwi is heading for a 2.3 percent weekly gain as investors continued to overlook signs of emerging inflation in the US and instead focused on improving risk appetite.

The kiwi rose to 74.14 US cents as at 5pm in Wellington from 73.71 cents late yesterday, and was up from 72.44 last Friday. The trade-weighted index gained to 75.55 from 75.33.

The US dollar index, which measures the greenback against a basket of currencies is at a three-year low as traders shrug off emerging inflationary pressures, amid mounting worries over twin deficits in the world's biggest economy. The International Monetary Fund estimates a 1 percent increase in the budget deficit is worth about a 0.6 percent increase in the current account deficit, suggesting a twin deficit in excess of 7 percent by the end of the decade, and TD Securities this seek said "those numbers do not bode well for the greenback in the medium-term."

The kiwi also benefited from increased investor appetite for risk-sensitive assets after last week's heightened volatility subsided, with Wall Street's fear gauge - the Chicago Options Board Exchange's Volatility Index or  VIX - falling to 19.13, well off a two-and-a-half year high of 50.3 it touched last week.

"It is almost as if the FX markets are ignoring the interest rates and arguably taking a lead from things like equities," said Mark Johnson, a senior dealer at OMF. He said there may be more upside to come for the kiwi given Monday is a US holiday and could stoke volatility in thinly-traded markets.

Johnson said the local currency faces resistance at 74.35 US cents and "if that gives way, the next resistance is about a cent higher." 

The kiwi dollar rose to 93.13 Australian cents from 92.90 cents yesterday and traded at 52.49 British pence from 52.58 pence. It was at 59.11 euro cents from 59.16 euro cents and rose to 4.7033 yuan from 4.6754 yuan. The kiwi edged up to 78.64 yen from 78.55 yen.

New Zealand's two-year swap rate fell 1 basis points to 2.16 percent, while 10-year swaps fell 2 points to 3.27 percent.


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