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NZ dollar dips from 2-month high as weak US wages weigh on greenback

Monday 7th March 2016

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The New Zealand dollar slipped from a two-month high as falling US wages weighed on the greenback and a recovery in investor confidence stoked demand for risk-sensitive assets such as the kiwi. 

The local currency dipped to 67.94 US cents at 5pm in Wellington from 68.12 cents on Friday in New York, and near the two-month high 68.19 cents it reached during the Northern Hemisphere session. The trade-weighted index rose to 73.09 from 72.85 last week. 

The kiwi benefited from a weaker greenback after the February non-farm payrolls report showed US wages fell in February, undermining the headline figure showing better-than-expected jobs growth that month. At the same time, investors have grown more comfortable with risk-sensitive assets, with the Chicago Board Options Exchange's Volatility Index, known as Wall Street's 'fear gauge', near a three-month low, and stock markets across Asia gaining today. 

"The US employment number's headline looked very good, but when people delved into them a little bit they realised hours worked and wage growth was disappointing," said Michael Johnston, senior dealer at HiFX in Auckland. "That put the US dollar under pressure and has pushed up the kiwi." 

Traders are awaiting the Reserve Bank's first full monetary policy statement of the year on Thursday, with market pricing evenly split on whether governor Graeme Wheeler will cut the 2.5 percent official cash rate even lower. 

HiFX's Johnston said he doesn't expect Wheeler to cut this week, but anticipates the RBNZ will talk about future reductions and ramp up its rhetoric in trying to talk down the currency. 

In the meantime, he anticipates the kiwi will follow the ebbs and flows of global risk sentiment. 

A BusinessDesk survey of nine analysts predicts the local currency will trade between 65.50 US cents and 69.50 cents this week. Five expect the kiwi to gain, two bet it will decline, and two anticipate it will remain relatively unchanged. 

The local currency was little changed at 61.83 euro cents from 61.89 cents on Friday in New York ahead of the European Central Bank's policy review on Thursday in Brussels. The ECB is expected to cut its key rates deeper into negative territory. The kiwi traded at 47.81 British pence from 47.87 pence last week. 

The New Zealand dollar decreased to 4.4254 Chinese yuan from 4.4323 yuan last week after the China’s National People’s Congress announced at the weekend that the country’s 2016 growth target is 6.5 percent to 7 percent, and set its budget deficit target for 2016 at 3 percent of gross domestic product from 2.3 percent in 2015.

Local government data showed wholesale trade fell 0.2 percent in the December quarter led by a decline in sales of base material products. 

New Zealand's two-year swap rate fell two basis points to 2.41 percent at 5pm in Wellington, and 10-year swaps decreased two basis points to 3.12 percent. 

The kiwi gained to 81.85 Australian cents from 91.34 cents last week, and slipped to 77.26 yen from 77.49 yen.

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