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NZ dollar rises above 72 US cents as Trumpflation trades unwind

Wednesday 18th January 2017

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The New Zealand dollar rose above 72 US cents, its highest level since mid-December, as investors in the United States moved to unwind trades based on the anticipated inflationary policies of President-elect Donald Trump. 

The kiwi was trading at 72.04 US cents at 5pm in Wellington, a slight increase on 72.02 US cents at 8am and up from 71.14 US cents yesterday. It rose as high as 72.15 US cents mid-morning. The trade-weighted index climbed to 78.72 from 78.35. 

The US dollar had surged since the November election which will bring Trump to power at the end of the week. However, in an interview over the weekend, Trump said the currency had become "too strong". US markets were closed for Martin Luther King Jr Day on Monday, but trading in the US on Tuesday saw a sharp sell-off in the value of the greenback. 

Michael Johnston, senior trader at HiFX in Auckland, said the market was being driven by the billionaire.  

"Markets are getting a little bit nervous with the surprising policy switches coming out of Trump's mouth. We're in for a fairly volatile next six months as markets adjust to Trump implementing his policies or not. Previously the market was thinking he's going to be spending huge amounts on infrastructure, cutting taxes, now people are questioning that and the trade is reversing."

The kiwi fell to 58.33 British pence from 59 pence yesterday after a speech overnight in which British Prime Minister Theresa May confirmed the UK would seek to leave the European single market as part of its exit from the European Union.  

"The pound had already weakened ahead of her speech so we've seen a bit of a relief rally in the pound. It's bounced back from incredibly low levels, but the jury's still out. There's going to be considerable uncertainty and some in the market think the pound could get weaker," Johnston said. 

The kiwi also gained against its trans-Tasman counterpart, rising to 95.36 Australian cents from 95.07 cents twenty-four hours earlier. Against the euro, it rose to 67.32 euro cents from 66.97 cents and is now back at pre-Christmas levels.  

The local currency also rose against the Asian currencies, reaching 81.42 Japanese yen from 81.13 yen and 4.9391 Chinese yuan from 4.9104 yuan.

New Zealand's two-year swap rate fell three basis points to 2.35 percent, while 10-year swaps fell two basis points to 3.34 percent.

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