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NZ dollar edges higher but range-bound as North Korea, NZ election in focus

Monday 4th September 2017

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The New Zealand dollar was edged up while remaining in a narrow range in jittery markets after North Korea’s latest nuclear test and ahead of the second debate between Prime Minister Bill English and opposition Labour Party leader Jacinda Ardern.  

The kiwi was trading at 71.73 US cents as at 5 pm in Wellington from 71.43 US cents as at 8am and from 71.54 cents in New York on Friday. The trade-weighted index was at 75.03 from 74.85.

Markets were jittery after North Korea on Sunday conducted its sixth nuclear test, which it said was of an advanced hydrogen bomb for a long-range missile, prompting the threat of a “massive” military response from the US if it or its allies were threatened.  

Ross Weston, a senior trader at Kiwibank, said markets are becoming "desensitised" to the war of words and it may take actual military action against North Korea to push the kiwi - and other risk currencies such as the Australian dollar - significantly lower.

"It's trying to bust through the 71.30 level (to the downside) but can't really do it. It's just continually bouncing off it," said Weston.  While the kiwi needs "a bit of US dollar strength" for the market to feel comfortable taking it below 70.00 "I don't  think a lot of people are really talking the kiwi higher at the moment."

Domestically, he said uncertainty around the Sept. 23 general election may also be capping the upside in the kiwi although the impact will likely prove fleeting. "Ahead of an election markets get a bit nervous and go into a protectionism phase but once the election has passed people get a lot more comfortable with it," he said. "We sort of move on."  The latest polls show the governing National Party and the opposition Labour Party are neck-and-neck. Attention will be focused on the latest debate between English and Ardern this evening. 

The kiwi traded at 78.76 yen versus 78.19 late Friday.  The New Zealand dollar was at 90.08 Australian cents from 90.05 cents on Friday. It declined to 60.36 euro cents from 60.29 cents and was at  55.37  British pence from 55.15 pence. The kiwi traded at 4.6975 yuan from 4.6863 yuan.

The two-year swap rate fell 3 basis point to 2.14 percent while the 10-year swaps fell 4 basis points to 3.08 percent.


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