NZ dollar gains as US dollar index dips from 16-year high, US bond yields slip

Monday 28th November 2016

The New Zealand dollar gained as the greenback slipped from a 16-year high and the yield on US Treasuries fell on perceptions the market had driven the Donald Trump-led US growth story too hard based on the policies he promised on the campaign trail.

The kiwi dollar rose to 70.76 US cents as at 5pm in Wellington from 70.37 cents in New York on Friday. The trade-weighted index rose to 77.68 from 77.55.

The US dollar index had climbed to its highest levels since 2003 in the wake of Trump's presidential victory and US bond yields surged amid speculation he would ramp up spending on infrastructure while slashing taxes. However, Trump may face opposition from factions of the Republican Party to policies including dialing back free-trade agreements.

"The US dollar overreached. There was a euphoric stage where Trump gets in and the new administration says they are going to spend a lot of money, boost the fiscal side of things and then interest rates have to go up," said Imre Speizer, senior market strategist at Westpac Banking Corp. "That's all well and good but it is based on policies that have been promised. Now we have to wait and see what is delivered."

He said a period of consolidation may ensue now for the greenback, which may allow the kiwi to climb as high as 71.50 US cents and if it breaks through that level, then up to 72 cents-to-74 cents.

Traders are also looking ahead to the Reserve Bank's financial stability report on Wednesday,after which Wheeler is scheduled to hold a media conference. The RBNZ's November monetary policy statement projects a rebound in inflation this quarter, pushing the annual rate back within the bank's target range and making further rate cuts unlikely. The week rounds out with US payrolls on Friday, which are expected to show the economy added 165,000 jobs last month, enough to keep the Federal Reserve on track to hike interest rates this month.

As well as the latest US jobs data, an OPEC meeting and two speeches by European Central Bank President Mario Draghi will draw the attention of investors in the coming days. The Federal Reserve releases its Beige Book on Wednesday in the US. In New Zealand, figures are expected today on building consents for October and business confidence for November

The kiwi dollar rose to 94.67 Australian cents from 94.53 cents in New York on Friday. It traded at 56.57 British pence up from 56.44 pence and traded at 66.43 euro cents from 66.44 cents. It rose to 4.8865 yuan from 4.8665 yuan and fell to 79.24 yen from 79.60 yen.

The two-year swap rate fell 3 basis point to 2.20 percent and the 10-year swap rate fell 8 basis points to 3.20 percent.

BusinessDesk.co.nz

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