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NZ dollar gains vs pound on soft BOE tone, extends slide vs Aussie

Friday 3rd February 2017

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The New Zealand dollar rose against the pound after the Bank of England trimmed its inflation forecasts and gave a less upbeat account of the British economy than traders were expecting. The kiwi extended its slide versus the Aussie dollar after Australia posted a record December trade surplus.

The kiwi dollar rose as high as 58.42 British pence after the BOE statement and was at 58.13 pence as at 8am in Wellington, up from 57.59 pence late yesterday. The local dollar fell as low as 94.48 Australian cents, the lowest in more than a week, and was recently at 95.11 cents from 95.52 cents yesterday. It traded at 72.85 US cents from 72.98 cents.

Traders dialed back expectations of a hike in British interest rates this year after the BOE reiterated that interest rates could move in either direction. While the central bank raised its growth forecasts as expected, with 2017 gross domestic product now forecast to grow 2 percent. The kiwi fell further against the Australian dollar following figures yesterday showing Australia recorded a seasonally-adjusted trade surplus of A$3.5 billion in December, a sign that the economy is benefitting from resurgent commodity prices.

"The market was expecting a more hawkish tone alongside the BOE's policy announcement, but Governor (Mark) Carney didn't deliver on that," said Jason Wong, currency strategist at Bank of New Zealand, in a note. While Australia's trade surplus was "much stronger than expected", stronger prices for commodities such as coal and iron ore "has been well observed over recent months so the boost to Australia's trade balance should not have really surprised."

The US dollar index fell to a two-month low overnight before recovering some ground, with US President Donald Trump rattling markets after reports of a blunt conversation with Australia's prime minister Malcolm Turnbull and a warning to Iran after that country tested a missile. Financial markets are now awaiting US non-farm payrolls tonight, which are forecast to show the world's biggest economy added 175,000 jobs in January, up from 156,00 the previous month.

The trade-weighted index slipped to 79.18 from 79.35 yesterday. The kiwi was at 5.0097 yuan from 5.0180 yuan, traded at 67.64 euro cents from 67.59 cents and fell to 82.08 yen from 82.23 yen.

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