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NZ dollar may extend fall after breaking technical support as Jackson Hole looms

Thursday 24th August 2017

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The New Zealand dollar was virtually unchanged but remained at risk of falling further after breaking through some key levels ahead of the central bankers' symposium in Jackson Hole. 

The kiwi traded at 72.23 US cents as at 5pm in Wellington from 72.25 US cents as at 8am in Wellington and  72.31 US cents late yesterday. The trade-weighted index fell to 76.04 from 76.18.

ANZ Bank New Zealand senior economist Phil Borkin said that while the kiwi has been fairly stable on the day it has now "broken through some key support levels, which opens up a whole world of possibilities on the downside."  It touched  71.95 US cents overnight, breaking through a support level of 72.00. While it wasn't able to hold that level, ANZ Bank said "we believe it is only a matter of time before NZD/USD tests lower levels again, with perhaps the 200-day moving average around 0.7125 a near-term target."

According to Borkin, the weakness is due to a "combination of a few forces," including the weaker economic forecasts in the pre-election fiscal update yesterday, some position unwinding, the fact that it has broken through support as well as some election uncertainty.

The local currency traded at 91.41 Australian cents from 91.62 cents and ANZ Bank said it could head toward 91 cents now it has definitively broken through 91.80. 

Looking ahead, Borkin said investors will be focused on any commentary coming out of central bankers at the annual meeting in Jackson Hole, Wyoming. He said there will be particular interest in comments from the European Central Bank chief Mario Draghi give the euro's recent strength.

If Draghi doesn't talk about the euro that will be nearly as interesting as if he does as "markets might take it as a sign that the ECB is comfortable with the euro at these levels, which will really shake things up," Borkin said. 

Federal Reserve chair Janet Yellen will also be in the spotlight regarding any guidance on the balance sheet unwind, he said. 

The kiwi dropped to 61.19 euro cents from 61.49 cents late yesterday. It was little changed at 56.48 British Pence from 56.42 British pence and slipped to 4.8124 yuan from 4.8159 yuan. It declined to 78.82 yen from 79.18 yen.

New Zealand's two-year swap rate was unchanged at 2.17 percent while 10-year swaps fell 2 basis points to 3.13 percent.

Forbes Leckie, a broker with OMF, said the swap market - particularly at the front end - has been stable lately as the market is now pricing in the first rate hike in November 2018, a shift from a few months ago when it was February-March. The only moves have been in the back end and they have been entirely driven by overseas influence, he said.  

While New Zealand's election is starting to come onto investors' radar in Asia as they see headlines, Leckie said he doesn't expect the market to shift dramatically on the result given that there isn't a great deal of divergence in economic policy. 

A dearth of local economic data in the short term means attention will remain focused offshore, he said. 


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