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NZ dollar headed for 1.1% weekly gain against US on trade optimism, dovish Fed

Friday 1st February 2019

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The New Zealand dollar is headed for a 1.1 percent weekly gain after the US Federal Reserve was cautious about future rate increases and markets were increasingly optimistic about the prospect of a US-China trade deal.  

The kiwi traded at 69.09 US cents at 5pm in Wellington versus 69.04 US cents at 8am in Wellington and  69.15 cents yesterday. It traded at 68.37 last Friday in New York. The trade-weighted index was at 74.39 from 74.24.

Markets were upbeat that the US and China will be able to strike a trade deal as both sides said there had been progress. Trade tensions between the two nations has weighed on sentiment given the potential negative impact on global growth.  According to different news reports, a U.S. trade delegation will now visit China in mid-February for a new round of talks. 

"We have to get this put on paper at some point if we agree.  There are some points that we don’t agree to yet, but I think we will agree.  I think, when President Xi and myself meet, every point will be agreed to," US President Donald Trump said in remarks published on the White House web site.  He also emphasised, however, the March 1 deadline to avoid a further lifting of tariffs. "That deadline has stayed, and we really haven't talked about it," said Trump. 

Martin Rudings, a foreign exchange dealer at OMF, said we are likely to see "choppy range trading until we see some clarity," on the trade front. 

The kiwi had already lifted to a six-week high Thursday after the US Federal Reserve said it will be patient when it comes to any future interest rates, comments which weighed sharply on the greenback.  It was also supported when Standard Standard & Poor's lifted its outlook on the New Zealand sovereign rating to 'positive'. They were joined by Fitch Ratings that affirmed New Zealand's long-term foreign currency issuer default rating at 'AA' and retained a stable outlook,

Rudings said one thing that is capping further gains in the kiwi is increased talk of rate cuts due to possible tightening of credit for the banks if the Reserve Bank's proposed doubling of required bank capital is implemented. 

Looking ahead, he said investors are watching for non farm payrolls data later in the global trading day.

The kiwi traded at 95.40 Australian cents from 95.13 cents yesterday, and at 4.6484 Chinese yuan from 4.6339 yuan. The local currency decreased to 75.22 yen from 75.28 yen yesterday and traded at 52.74 British pence from 52.65 pence. It rose to 60.37 euro cents from 60.11 cents.

The two-year swap rate is unchanged from late yesterday at 1.9000 percent; the 10-year swap rate is at 2.4900 from 2.5150. 


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