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NZ dollar falls after Trump's tax talk lifts greenback, Wheeler tepid on rate hikes

Friday 10th February 2017

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The New Zealand dollar fell to its lowest level since Jan. 23 after US President Donald Trump hinted at tax cuts within weeks and after Reserve Bank governor Graeme Wheeler said interest rates wouldn't rise any time soon.

The New Zealand dollar fell as low as 71.72 US cents and traded at 71.84 cents as at 8am in Wellington from 71.96 cents late yesterday. The trade-weighted index was little changed at  78.32.

Trump told airline executives that he would be announcing "something phenomenal in terms of tax" in the next few weeks, comments that helped lift the greenback, pushed up US bond yields and helped lift the Standard & Poor's 500 Index to a record high. That weighed on the kiwi, which had sold off yesterday after the RBNZ's monetary policy statement adopted a neutral tone and projected the official cash rate to rise just 25 basis points by 2020, dashing some market speculation that the central bank could hike as soon as this year.

Trump's comments "saw the 'Trump trade'  resume," said David Croy, senior rates strategist at ANZ Bank New Zealand, in a note. "The kiwi continues to languish in the wake of yesterday’s very neutral RBNZ MPS. Fair enough too, with the governor warning that the rates market had gotten a bit too far ahead of itself pricing in so much tightening."

Still, Croy said the kiwi was "too expensive to short" and "comes with a decent economic/political story."

No local economic figures are scheduled for release today although attention will shift to the Reserve Bank of Australia's monetary policy statement. RBA governor Philip Lowe was relatively upbeat about the Australian economy in a speech last night and was equivocal on the strength of the Australian dollar.

The kiwi fell to 94.14 Australian cents from 94.40 cents late yesterday. It traded at 57.44 British pence from 57.49 pence and was at 67.39 euro cents from 67.31 cents. The kiwi rose to 81.33 yen from 80.68 yen and fell to 4.9305 yuan from 4.9423 yuan.

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