NZ dollar recovers some ground after Friday's sell-off as risk appetite revives

Monday 19th September 2016

The New Zealand dollar recovered some ground from Friday's sell-off as investors regained some of their risk appetite and resumed the hunt for yield.

The kiwi traded at 72.97 US cents as at 5pm in Wellington, up from as low as 72.48 cents in the wake of the US inflation data on Friday and from 73.02 cents before the figures were released. The trade-weighted index recovered to 77.86, still below the 77.99 level it was at before Friday's inflation figures.

Traders are looking ahead to a trifecta of central bank pronouncements this week - the Bank of Japan, Federal Reserve and Reserve Bank of New Zealand, with little expectation the Fed or RBNZ will change policy but with event risk around all three statements. Both the Fed and the Bank of Japan begin two-day meetings on Tuesday and the RBNZ's policy review is on Thursday, NZ time, coming hard on the heels of the Fed's release. Before that, the latest GlobalDairyTrade auction is expected to show a further price recovery in New Zealand's biggest export.

"We're seeing a bit of a selloff in some bond markets and high yield is attracting some interest," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. "The kiwi will probably range-trade ahead of the BOJ, then the Fed, then the RBNZ. The dairy auction should be positive. The kiwi is a 'buy on dips' at least until the dairy auction."

Just over half of economists surveyed by Bloomberg forecast an expansion of BOJ stimulus this week. RBNZ governor Graeme Wheeler is expected to keep the official cash rate at 2 percent.

The kiwi fell on Friday in the US after figures showed the US consumer price index rose 0.2 percent in August versus expectations of a 0.1 percent gain and taking annual inflation to 1.1 percent, while core CPI rose 2.3 percent. The US dollar index rose to 96.11, the highest since Sept. 2.

The kiwi gained to 55.96 British pence from 55.20 pence in Wellington on Friday, with the pound broadly weaker after Bloomberg cited unnamed officials saying UK Chancellor of the Exchequer Philip Hammond was ready to accept that Britain may have to cede membership of the European Union.

The local currency fell to 96.85 Australian cents from 97.21 cents on Friday in Wellington and declined to 4.8656 yuan from 4.8749 yuan. It gained to 65.32 euro cents from 65.02 cents and traded at 74.46 yen from 74.55 yen.

New Zealand's two-year swap rate rose 1 basis point to 2.05 percent and 10-year swaps fell 1 basis point to 2.58 percent.

BusinessDesk.co.nz

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