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NZ dollar rises on mild improvement in sentiment

Tuesday 20th August 2019

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The New Zealand dollar rose as investors decided to look on the bright side in the absence of hard news on the US-China trade war and what central banks will do next.

The kiwi was trading at 64.22 US cents at 5pm in Wellington from 64.04 cents at 8am. The trade-weighted index was at 71.52 points from 71.32.

“There’s a slight improvement in sentiment and a hope that the China-US trade talks aren’t damned to eternity,” says Peter Cavanaugh, the senior client advisor at Bancorp Treasury Services.

Earlier today, the Reserve Bank of Australia released the minutes from its last meeting on Aug. 6 when it decided to leave its cash rate unchanged at 1 percent. It had cut the cash rate at the previous two meetings.

“Based on the information available and the central scenario that was presented, members judged it reasonable to expect that an extended period of low interest rates would be required in Australia to make sustained progress towards full employment and achieve more assured progress towards the inflation target,” the minutes said.

Cavanaugh describes the minutes as “the musings of a central bank wanting to maintain it’s easing momentum but not wanting to cut three months in a row.”

The minutes of the Federal Reserve’s last meeting will be released overnight and the minutes of the European Central Bank’s last meeting will be released on Thursday.

But the major event this week that has investors on tenterhooks is the meeting of central bankers from around the world at Jackson Hole in Wyoming. Fed chair Jerome Powell is scheduled to speak on Friday.

The Fed is currently expected to next cut rates in September after doing so in July for the first time since the GFC.

“Last year, something was said at Jackson Hole that put the frighteners on every central bank,” Cavanaugh says.

While nobody knows what exactly was said, “following Jackson Hold, every central bank started talking about downside risks and had people asking, `what do they know that we don’t,'” he says.

Aiding the improvement in sentiment are indicators of other moves in major economies to stimulate activity, such as talk that Germany, normally a stickler for parsimony when it comes to government spending, will introduce fiscal stimulus measures.

That also includes the People’s Bank of China’s announcement on Saturday of a key interest rate reform that will lower corporate borrowing costs, and reports from the US that White House officials are looking at a temporary cut to payroll taxes to try to prevent that economy from going into recession.

The kiwi was trading at 94.67 Australian cents from 94.68, at 52.95 British pence from 52.77, at 57.92 euro cents from 57.79, at 68.42 yen from 68.29 and at 4.5394 Chinese yuan from 4.5133.

The New Zealand two-year swap rate edged up to a bid price of 0.9374 percent from yesterday’s close at 0.9350. The 10-year swap rate rose to 1.2400 percent from 1.2225.


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