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NZ dollar falls as greenback recovers, markets see positives for US growth in Trump win

Thursday 10th November 2016

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New Zealand dollar fell as the greenback recovered from an initial sell-off following Donald Trump's shock US election win as financial markets saw positives for the US economy in his promises to cut corporate tax and boost infrastructure spending, creating more American jobs.

The kiwi dollar traded at 72.72 US cents as at 8am in Wellington from 73.33 cents late yesterday. It rose to 76.92 yen having tumbled to 74.66 yen against the so-called safe-haven currency in the immediate market ructions sparked by Trump's win.

Stocks on Wall Street rose, led by banks, healthcare, pharmaceutical companies and those related to construction activity as investors effectively repriced the perceived risks not just of Trump's presidential victory but the clean sweep by the Republicans on the House and the Senate, giving them absolute power in Washington. It may be a busy morning for New Zealand traders. Reserve Bank governor Graeme Wheeler is widely expected to cut the official cash rate to 1.75 percent and hint at more easing to prevent the market looking ahead to a time of rising interest rates that would favour a stronger kiwi.

"Trump says he will cut the corporate tax rate to 15 percent and renew all the infrastructure and get growth going," said Martin Rudings, senior foreign exchange dealer at OMF. "That's going to be good for the American economy. In some parts of the world there may be concerns about trade, but generally the market thinks he's going to get things moving."

Investors had taken some comfort from Trump's conciliatory speech after the results became clear and from US President Barack Obama's comment that Americans were all one team, "and it looks like corporate America endorses his policies," Rudings said.

Wheeler is expected to cut the official cash rate for the last time in this easing cycle, even if he hints at further cuts, with the economy growing at a fast enough pace to stoke inflation.The central bank publishes its latest economic forecasts in the monetary policy statement today, having projected a return to the bottom of the 1 percent-to-3 percent target range in its August MPS.

The trade-weighted index slipped to 78.49 from 78.66, still well above the level projected by the RBNZ  for the fourth quarter in its August forecasts.

The New Zealand dollar declined to 58.57 British pence from 58.68 pence and fell to 95.29 Australian cents from 96.19 cents. It gained to 66.57 euro cents from 65.25 cents and fell to 4.9316 yuan from 4.9639 yuan.

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