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NZ dollar heads for 0.7% weekly drop ahead of US jobs report, G-20 meeting

Friday 7th July 2017

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The New Zealand dollar is heading for a 0.7 percent decline against the greenback this week as investors go into a holding pattern ahead of US employment figures and the Group of 20 Nations leaders' meeting in Germany. 

The kiwi fell to 72.82 US cents as at 5pm in Wellington from 73.32 cents on last Friday in New York, and little changed from 72.74 cents yesterday. The trade-weighted index is largely flat at 78.32 from 78.25 a week ago and from 78.26 yesterday. 

Investors are awaiting US non-farm payrolls figures on Friday in Washington which are expected to show the world's biggest economy added 178,000 jobs last month, up from 138,000 in May, and an unchanged unemployment rate at 4.3 percent. US economic momentum has hit speed wobbles this year and persistently low oil prices and flat wages have some questioning whether inflation will start rearing its head, despite the growing rhetoric among central bankers that rising prices will lead to higher interest rates. 

"I can't see a strong payrolls number after the last one and the low unemployment rate as well," said Michael Johnston, senior dealer at HiFX in Auckland. "The kiwi has been struggling to stay above 73" US cents, and Johnston said if it "rallies up I'd be a cautious seller into it." 

G-20 leaders are also meeting in Hamburg, and with North Korea's successful intercontinental ballistic missile test meetings between US president Donald Trump and his Russian and Chinese counterparts Vladimir Putin and Xi Jinping are going to be closely watched for any steps to cool tensions on the Korean peninsula. 

HiFX's Johnston said the G-20 meetings also occasionally comment on currencies and while he's not expecting the communique to cover foreign exchange any rhetoric on those markets could spook investors when markets re-open on Monday. 

Local interest rates followed their international peers higher at the start of the week when central bank rhetoric had investors thinking there could be a worldwide move away from the ultra-loose monetary policy that's been in place since the global financial crisis hit in late 2008. 

However, Johnston said he doubts inflation will return fast enough to spur rate hikes beyond a "very gradual" pace and said he doesn't expect the Federal Reserve to move again until December. 

New Zealand's two-year swap rate rose 3 basis points to 2.31 percent, and 10-year swaps climbed 9 basis points to 3.40 percent. That compares to 2.32 percent and 3.34 percent last week respectively. 

The local currency rose to 95.95 Australian cents from 95.70 cents yesterday and gained to 4.9528 yuan from 4.9477 yuan. It traded at 56.13 pence from 56.23 pence yesterday and rose to 82.78 yen from 82.23 yen. It dropped to 63.80 euro cents from 64.18 cents yesterday after minutes to the European Central Bank's last review showed policymakers were willing to talk about winding their easing bias in coming meetings. 


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