NZ dollar gains as greenback falls on weaker manufacturing ISM report

Friday 2nd September 2016

The New Zealand dollar gained as the US dollar index declined following a weaker-than-expected ISM manufacturing report while the market looks ahead to tonight's key non-farm payrolls report for clues on the timing of US interest rate hikes.

The kiwi rose to 72.80 US cents as at 8am in Wellington from 72.51 cents late yesterday. The trade-weighted index gained to 77.55 from 77.43.

The US dollar index dropped to 95.616, a three-day low, after the US manufacturing ISM report for August dropped to 49.4 from 52.6 percent in July. Economists had expected a more modest decline to 52. The dollar index is still well above the 94.631 level of a week ago, before Federal Reserve chairwoman Janet Yellen and vice chairman Stanley Fischer talked up the data-dependent prospects of interest rate hikes, bringing more focus on tonight's payrolls report.

"US non-farm payrolls will be followed by markets even more intensely than usual given recent Fed comments elevating its importance in the near term policy mix," said Imre Speizer, senior market strategist at Westpac Banking Corp. "The US dollar’s weakness overnight should support the NZD in a 72.20-73.20 US cent range ahead of tonight’s important US payrolls report."

The market expects the US economy added 180,000 jobs in August, down from 255,000 in July. Speizer said Westpac's forecast is a tad lower at 170,000. "Employment gains are likely to see the unemployment rate edge back down to 4.8 percent," he said in a note. "As is always the case, that depends on participation."

Traders are pricing in just a 12 percent chance that the Reserve Bank will cut interest rates at its next meeting on Sept. 22 but the odds of a 25 basis point cut by the monetary policy statement on Nov. 10 are currently around 77 percent.

The New Zealand dollar rose to 96.42 Australian cents from 96.13 cents late yesterday. It increased to 75.12 yen from 74.89 yen and gained to 4.8580 yuan from 4.8460 yuan. It was little changed at 64.98 euro cents from 65.04 cents and fell to 54.87 British pence from 55.16 pence after the UK Markit PMI manufacturing index for August printed at 53.3 against expectations of 49.

BusinessDesk.co.nz

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