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NZ dollar eases after short-lived technical rally

Wednesday 25th September 2019

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The New Zealand dollar was slightly weaker against the US dollar despite spiking on less-dovish-than-expected commentary when the Reserve Bank's monetary policy committee held the official cash rate steady.

The kiwi was trading at 63.22 US cents at 5pm in Wellington, down from the day's high at 63.48 cents and from 63.27 cents at 8am. The trade-weighted index was at 70.44 from 70.39.

The short-lived mid-afternoon rally "was predominantly due to the unwinding of pricing for a cut," says Mike Shirley, a dealer at Kiwibank.

Ahead of the 2pm announcement, pricing suggested a 14-15 percent chance of a cut, mainly from those hoping for a surprise after the early August "50 points out of nowhere double-whammy," Shirley says. That took the OCR from 1.5 percent to 1 percent.

Instead of a surprise, today's statement was "stock standard" and very much as most had expected.

Australia's Reserve Bank governor Philip Lowe also disappointed with his speech yesterday evening.

"He certainly left the door ajar, but the market was looking for an increased level of certainty, not something explicit but certainly leaning towards another cut in October," Shirley said.

Nevertheless, Lowe did say that falling global interest rates meant that if the RBA didn't follow suit and cut its cash rate, the Australian dollar would rise, hurting the domestic economy.

Likewise, even though the RBNZ ruled out an OCR cut today, it still sees "scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain our inflation and employment objectives."

The political crisis in the United States, where the Democrat-led House of Representatives has just opened a formal impeachment inquiry into President Donald Trump, may also be weighing on the US dollar.

"It feels like financial markets are sitting on the sidelines with that one. It hasn't really gotten a lot of traction in currency markets," Shirley says.

The market still has a number of other things to worry about, including the US-China trade war and British Prime Minister Boris Johnson's Brexit plans being blown out of the water by that country's Supreme Court.

The tensions in the Middle East are another of those worries, although oil prices have receded after last week's spike.

"Nothing's really been resolved – none of those things have fundamentally changed and it's all still milling around in the background," Shirley says.

"It makes it hard to pick the next big thing."

The kiwi was at 93.20 Australian cents from 93.04, at 50.70 British pence from 50.64, at 57.49 euro cents from 57.43, at 67.86 yen from 67.71 and at 4.5008 Chinese yuan from 4.5009.

The two-year swap rate nudged up to a bid price of 0.9398 percent from 0.9288 yesterday while 10-year swaps fell to 1.2000 percent from 1.2325.


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