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NZ dollar falls as US tax cut progress, Powell's rate hike signal lift greenback

Wednesday 29th November 2017

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The kiwi fell as the US dollar gained ground on signs of progress on American tax cuts and after Federal Reserve chair nominee Jerome Powell signaled a December rate hike was on the cards. 

The kiwi traded at 68.88 US cents as at 5pm in Wellington from 69.26 cents late yesterday. The trade-weighted index slipped to 72.68 from 73.03 yesterday.

The greenback gained in Asia after Powell told the Senate Banking Committee “the case for raising interest rates at our next meeting is coming together." Investors were also cheered by signs of progress on US tax cuts. According to Reuters, Senate Republicans "rammed forward" their bill in a partisan committee vote that set up a full vote by the Senate as soon as Thursday, although details of the measure remained unsettled.

"There's been slippage (in the kiwi) as the US dollar has ground up on the day," said Westpac Banking Corp senior strategist Imre Speizer. The greenback was also helped when equities - particularly banking stocks- pushed higher after Powell said the Fed will be reviewing how it regulates banks, with an eye to a less onerous process. 

Speizer said domestically the central bank's move to ease loan-to-value restrictions from January as housing market pressures abate was a big surprise and a "bold move."  From Jan. 1, up to 15 percent of a bank's new lending can go to owner-occupiers borrowers putting down less than a fifth of the price for a deposit, up from the original 10 percent. Property investors will also get a break, with 5 percent of new mortgage lending allowed at a 65 percent LVR, up from a 60 percent. 

However, while it should have pushed the kiwi higher "the big US dollar movement has dominated and put the LVR news on the sideline," said Speizer. 

The kiwi dollar fell to 90.80 Australian cents from 91.08 cents yesterday and traded at 58.12 euro cents from 58.18 cents and 51.55 British pence from 51.97 pence. It fell to 4.5455 yuan from 4.5743 yuan and slipped to 76.78 yen from 77.02 yen.

New Zealand's two-year swap rate fell 1 basis point to 2.14 while the 10-year swap rate fell 3  basis point to 3.08 percent.


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