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NZ dollar weakens heading into US non-farm payroll figures

Friday 7th June 2019

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The New Zealand dollar was a little weaker ahead of key US jobs data later today having gained almost a US cent during the past week.

The market is also focused on whether US President Donald Trump will follow through on his threat to start imposing escalating tariffs on all Mexican imports from Monday.

The kiwi was trading at 66.16 US cents at 5pm in Wellington from 66.23 at 8am and from 65.34 in New York on Friday. The trade-weighted index was at 72.60 from 72.65 this morning.

Reports from Washington, where Mexican officials are trying to stave off Trump’s tariffs by acceding to his demands to help deter migrants from seeking asylum in the US, are suggesting Trump may postpone the start date for the tariffs.

Sheldon Slabbert, a dealer at CMC Markets NZ, says the market is also nervous about the non-farm payrolls data. Another survey published earlier this week suggests the number of jobs added may be considerably lower than the 180,000 economists have forecast.

That other survey from payroll processing firm ADP showed companies added just 27,000 new jobs in the US in May, well below market expectations of 173,000.

While the results of that survey don’t always translate into similar readings from the non-farm payrolls figures, a nervous market might be satisfied if the actual figure is 150,000 new jobs or more, Slabbert says.

“A good question to ask is, if we do get a miss, does that mean we’re looking at a rate cut in July?” he says.

He notes the market has gone from expecting interest rate hikes to expecting rate cuts in the space of less than six months, which is a remarkable turnaround.

While the market may react to “the sugar high” of actual rate cuts by thinking that means people and companies can borrow more, they should be mindful that the Federal Reserve will only cut rates if it thinks the US economy is weakening.

“Even though borrowing may be a little cheaper, it’s foreboding a weaker economy and that’s not a time to load up on more liabilities.”

New Zealand’s Reserve Bank cut interest rates last month and the anecdotal evidence is suggesting the domestic economy may also be slowing, Slabbert says.

And other central banks around the world have also been cutting interest rates including the Reserve Bank of Australia last Tuesday and the Bank of India today.

“If you’re continually having to ease, that means the economy is on its last legs before going into recession.”

The New Zealand dollar was trading at 94.89 Australian cents from 94.90, at 52.10 British pence from 52.17, at 58.71 euro cents from 58.72, at 71.76 yen from 71.83 yen and at 4.5688 Chinese yuan from 4.5746. 

The New Zealand two-year swap rate edged up to 1.4103 percent from 1.4002 yesterday while the 10-year swap rate nudged up to 1.9125 percent from 1.9100.


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