NZ dollar gains as Chinese manufacturing slows less than expected

Monday 2nd November 2015

The New Zealand dollar rose as Chinese manufacturing shrank less than expected last month, soothing concerns about growth in the world's second biggest economy and as investors digest last week's decision to keep local interest rates unchanged.

The kiwi gained to 67.80 US cents at 5pm in Wellington from 67.54 cents at 8am, and little changed from 67.71 cents on Friday in New York. The trade-weighted index increased to 73.24 from 73.05.

The preliminary Caixin China manufacturing purchasing managers' index rose to 48.3 in October, ahead of expectations and an improvement on the reading of 47.2 in September, where a score of 50 separates contraction from expansion. That alleviated some concerns about Chinese growth after an official reading on the weekend showed an unexpected contraction. Meantime, traders are still digesting the Reserve Bank of New Zealand's decision to keep interest rates on hold last week, ahead of the Reserve Bank of Australia's review tomorrow.

"The weekend steer (on China) was a wee bit disappointing, and today's steer was a wee bit un-disappointing, so they probably cancel each other out," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "The Aussie perked back up on that, and the kiwi rose for a similar reason."

Speizer said the kiwi was also being pushed up by the uncertainty over whether the RBNZ will cut interest rates again, with traders pricing in a 44 percent chance of reduction at the December meeting, and with a recent pull-back in the US dollar.

He expects the local currency will push higher this week, an outlier in a BusinessDesk survey of nine analysts who predict the kiwi will trade between 65.45 US cents and 69.20 cents this week. Five are picking it to decline, two see it rising, and two see it largely unchanged.

The kiwi traded at 94.88 Australian cents from 94.81 cents on Friday in New York ahead of the RBA policy review tomorrow. Traders have priced in a 40 percent chance the RBA will cut rates tomorrow, though Westpac doesn't anticipate an easing, Speizer said.

The local currency gained to 4.2961 Chinese yuan from 4.2779 yuan on Friday in New York, and was little changed at 81.57 yen from 81.67 yen. It traded at 61.47 euro cents from 61.52 cents last week, and 43.93 British pence from 43.88 pence.

New Zealand's two-year swap rate was unchanged at 2.75 percent at 5pm in Wellington, and the 10-year swap was 3.51 percent.

BusinessDesk.co.nz

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