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New Zealand dollar eases in risk-off markets

Wednesday 29th May 2019

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The New Zealand dollar eased slightly as markets continue to fret about US-China trade tensions. The focus is now on the central bank's financial stability report this morning. 

The kiwi was trading at 65.44 US cents at 8am in Wellington from 65.51 at 5pm and the trade-weighted index was at 72.17 points from 72.07.

"There was a risk-off tone to markets overnight, benefiting bonds and the USD, and hitting equities," said ANZ FX/rates strategist Sandeep Parekh. 

According to Bloomberg, if tariffs expand to cover all U.S.-China trade, and markets slump in response, global GDP will take a $600 billion hit in 2021. 

Weak US data - with the Dallas manufacturing index unexpectedly falling into negative territory - did nothing to help sentiment, said Parekh. The Dallas Federal Reserve manufacturing index slipped to five month lows at -5.2 points versus +6 expected. The “outlook uncertainty” component increased substantially, with several businesses pointing to trade talks with China as the source, he said. 

Domestically, the Reserve Bank of New Zealand's six-monthly financial stability report will be released, the first since it proposed lifting banks' required capital levels. The proposals include increasing minimum tier 1 capital from 8.5 percent currently to 16 percent for the four major banks and to 15 percent for other banks.

"As well as the words around that, markets will be interested in whether the loan-to-value mortgage lending restrictions are eased," said Parekh. 

ANZ's business outlook survey will also be a risk factor for the New Zealand dollar today.  Investors will be watching to see if Prime Minister Jacinda Ardern's decision to drop a planned capital gains tax has lifted business owners' spirits.

The New Zealand dollar was at 94.48 Australian cents from 94.56, at 51.70 British pence from 51.69, at 58.60 euro cents from 58.57, at 72.17 yen from 71.75 and at 4.5198 Chinese yuan from 4.5237.


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