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NZ dollar drifts lower as greenback gains; focus on Jackson Hole

Tuesday 20th August 2019

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The New Zealand dollar is weaker after the greenback benefited from improving risk appetite.

The kiwi was trading at 64.04 US cents at 8am in Wellington from 64.17 cents at 5pm. The trade-weighed index was at 71.32 points versus at 71.38. 

Fears of a global slowdown were eased by news that Germany may be preparing a fiscal stimulus package. According to Bloomberg, on Sunday Finance Minister Olaf Scholz suggested Germany could muster an extra 50 billion euros of extra spending if necessary.

ANZ Bank says moves by China to reform its interest rate system are also helping sentiment as is an announcement that the US will delay restrictions on Huawei operations for 90 days, giving US telecom companies more time to untangle their systems from reliance on the company’s technology.

Markets, however, are waiting for the release of minutes from the Federal Reserve’s July policy meeting and Fed chair Jerome Powell’s speech in Jackson Hole on “Challenges for Monetary Policy” on Friday. A raft of other speeches will also be closely scrutinised as central banks meet at the Federal Reserve’s economic policy symposium in Wyoming.

“Jackson Hole is going to be huge for market participants this year… every speech will be dissected for hints on the future path of interest rates,” said Kiwibank trader Mike Shirley.

“Central bankers are seldom straight talkers, so the issue for them is going to be ensuring that what they are implying is what winds up being inferred by the market,” he added.

TD Securities senior Asia Pacific rates strategist Prashant Newnaha also sounded a note of caution.

“We expect the market is likely to be disappointed at Jackson Hole this week as we anticipate a lack of Fed commitment to ease rates,” he said.

Today, investors will be watching for minutes from the Reserve Bank of Australia’s August meeting. They are due for release at 1:30pm New Zealand time.

Newnaha expects the RBA to ease again this year to 0.75 percent but said it is highly unlikely it does so in September.

“We retain our view that the RBA is in 'wait and see' mode for now, monitoring data following tax cuts, rate cuts and easing in macro-prudential policy,” he said.

The kiwi was trading at 94.68 Australian cents from 94.60, at 52.77 British pence from 52.78, at 57.79 euro cents from 57.85, at 68.29 yen from 68.25 and at 4.5133 Chinese yuan from 4.5216.


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