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NZ dollar gains on US dollar weakness, soft Australian data

Tuesday 6th June 2017

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The New Zealand dollar extended its gains against a broadly weak US dollar and rose against the Aussie after Australia's first quarter current account data disappointed investors and the Reserve Bank of Australia kept interest rates on hold.

The kiwi rose to 71.56 US cents as at 5pm from 71.34 US cents as at 8am and 71.18 cents late yesterday. The trade-weighted index rose to 76.98 from 76.53 on Friday, before the three-day Queen's Birthday public holiday.

The New Zealand dollar – which got a strong weekend lift after surprisingly weak US employment data on Friday – gained further ground as escalating tensions in the Middle East, the impending testimony of a former US Federal Bureau of Investigation director, British elections and a European Central Bank meeting this week, all took their toll on the greenback in Asian trading.

"It is still elevated, mainly because the US dollar has been weak and that really stems from last Friday's payrolls surprise," said Westpac Bank senior FX strategist Imre Speizer. He said it got a further lift against both the Australian dollar and the US dollar when the "Aussie fell on their current account number, which was pretty bad."

The kiwi rose to 95.53 Australian cents from 95.37 cents late yesterday.

Australia's current account deficit was A$3.1 billion deficit or more than six times the A$500 million deficit expected by economists, which weighed on the Aussie. The Reserve Bank of Australia held its cash rate unchanged at 1.5 percent as expected and there was a fairly muted reaction as the statement was largely unchanged. Investors will now be looking ahead to tomorrow's first-quarter gross domestic product data in Australia, which could give the kiwi an additional lift if it prints weaker than expected. Economists are expecting quarterly growth of 0.2 percent and 1.6 percent on the year, according to a Reuters poll.

The kiwi has been benefiting from optimism the local economic outlook favours the kiwi over its trans-Tasman counterpart. Several economists are now speculating that parity may be back on the cards at some point down the track.

Domestically traders will be watching the overnight Global Dairy Trade auction to see how dairy product prices are faring. Speizer said the futures were pointing to a 3 percent decline in milk prices.

Overall “sentiment in the kiwi is riding very high at the moment,” he said. There may be short-term sell-off if the milk prices are weak but “the market will then turn to bigger things this week,” including the vote in the UK, former FBI Director James Comey's public testimony about alleged Russian interference in the 2016 election and the ECB meeting.

The kiwi rose to 63.53 euro cents from 63.19 cents and traded at 55.37 British pence from 55.31 pence. The kiwi was at 78.66 yen from 78.70 yen and gained to 4.8656 yuan from 4.8422 yuan.

New Zealand's two-year swap rate fell 2 basis points to 2.18 percent and the 10-year swap fell 4 basis points to 3.15 percent.



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