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NZ dollar tumbles vs yen on potential for Trump victory, Republican 'clean sweep'

Wednesday 9th November 2016

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The New Zealand dollar tumbled against the yen as speculation grew that the Republican Party may win not only the White House but achieve a clean sweep with control of the Senate and the House as well, giving it more power to enact policy than President Barack Obama had.

The kiwi fell to 74.66 yen as at 5pm in Wellington from 76.53 yen late yesterday. The local dollar traded at 73.33 US cents from 73.24 cents yesterday.

The New York Times has put Donald Trump's chances of winning the US presidency at 91 percent, while Nate Silver's FiveThirtyEight.com website puts Trump's chances at 61 percent to Clinton on 37 percent. However, FiveThirtyEight.com also projects an 82 percent chance that the Republicans will win the Senate while the Democrats are on 18 percent odds. Meanwhile, bets on a Federal Reserve rate hike next month have collapsed to just 37 percent from 84 percent this morning, overshadowing a rate cut expected from the Reserve Bank of New Zealand tomorrow.

"The world didn't end with Brexit and the world won't end with a clean sweep," said Robert Rennie, chief currency strategist at Westpac Banking Corp. "But the market likes checks and balances in place and it's not obvious that we have that. There will be a tendency for risk markets to err on the underside of caution."

He said the market is also assessing the implications of a resounding Republican victory on America's relations with China, amid expectations they could become more frosty, which could prove disruptive to economies such as Australia and New Zealand, which count China as their most important market. RBNZ governor Graeme Wheeler's policy statement tomorrow may be seen as an added complication that would cause traders to avoid the kiwi, he said.

"But I certainly expect the Aussie to continue to fall toward the lower end of its range," he said.

The trade-weighted index was at 78.66, having climbed as high as 79.03 before poll results started flowing in and from 78.59 late yesterday.

BNZ governor Graeme Wheeler is expected to cut the official cash rate a quarter-point to a new record-low 1.75 percent tomorrow in what may be the last step in its easing cycle, although it may officially keep in place the prospect of a further cut to try to prevent the kiwi from rallying. The TWI is currently about 4 percent higher than the average level the bank projected in its August MPS.

The New Zealand dollar fell to 58.68 British pence from 59.10 pence late yesterday and climbed to 96.19 Australian cents from  95.12 cents. It fell to 65.25 euro cents from 66.36 cents and retraced earlier gains against the Chinese yuan to trade at 4.9639 yuan from  4.9646 yuan. Earlier it reached 5.0032 yuan, the first time in about two years it has exceeded 5.0000 yuan.

New Zealand's two-year swap rate fell 3 basis points to 2.15 percent and the ten-year swaps fell seven basis points to 2.84 percent.

BusinessDesk.co.nz

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