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NZ dollar rises as markets bet on US interest rate cut

Monday 21st October 2019

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The New Zealand dollar was stronger against the US dollar as markets bet on the US Federal Reserve cutting interest rates at the end of the month.

It was also rose against the Australian dollar because dairy prices are headed north and iron ore prices headed south.

The kiwi was trading at 64.00 US cents at 5pm in Wellington from 63.78 cents at 7:55am and at 93.20 Australian cents from 93.11 cents. The trade-weighted index was at 70.69 points from 70.52.

Iron ore prices are falling because of a developing surplus while dairy prices have risen at each of the past three GlobalDairyTrade auctions.

Martin Rudings, private client manager at OMF, says the kiwi's strength has been driven by buying out of Asia and the price of iron ore, one of Australia's key commodities, has been heading in the opposite direction to rising dairy prices.

Dairy products accounted for 25.1 percent of New Zealand's exports in the year ended August.

On Friday, the Fed's vice chair, Richard Clarida, gave a speech in Boston painting a gloomy outlook.

“Global growth estimates continue to be marked down, and global disinflationary pressures cloud the outlook for US inflation,” Clarida said.

The Fed's next meeting is on Oct. 29-30 and investors have almost priced in a 25 basis point cut in the Fed Funds Rate to between 1.5 percent and 1.75 percent.

The markets have also fully priced in a 25 basis point rate cut to 0.75 percent by the Reserve Bank of New Zealand when its monetary policy committee next meets on Nov. 13 but are pushing out further cuts, Rudings says.

"There's not another one until May next year," he says.

Australia's Reserve Bank last cut rates early this month, taking its cash rate to 0.75 percent, and the market doesn't expect another cut this year, he says.

"The jury's certainly not 100 percent convinced there will be more, and rightly so. When you get down this low, it's hard to see what you're going to achieve" by making further cuts, Rudings says.

The New Zealand dollar was trading at 49.55 British pence from 49.32, at 57.34 euro cents from 57.17, at 69.43 yen from 69.18, and at 4.5232 Chinese yuan from 4.5159.

The two-year swap rate edged up to a bid price of 0.9509 percent from 0.9303 on Friday while the 10-year swaps rose to 1.3975 percent from 1.3275.


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