NZ dollar gains vs. pound after BoE easing, traders await US payrolls

Friday 5th August 2016

The New Zealand dollar held its gains against the British pound after the Bank of England cut interest rates in a bigger-than-expected stimulus package, underlining the appeal of higher-yielding currencies such as the kiwi.

The local dollar traded at 54.78 British pence as at 5pm in Wellington, having earlier reached a three-week high 54.87 pence, from 53.77 pence yesterday. The kiwi rose to 71.96 US cents from 71.69 cents yesterday.

The Bank of England cut its bank rate to a record low 0.25 percent and expanded its asset purchase programme. The cut widened the gap with the Reserve Bank's official cash rate to 200 basis points. Traders said a 25 basis point cut by the RBNZ next week and the promise of further easing is already priced into the kiwi while the biggest near-term risk is non-farm payrolls in the US on Friday which will help show whether the market has been right in downgrading the prospects of a Federal Reserve rate hike this year.

"Overall the kiwi has got a bit of a bias to keep going up," said Imre Speizer, market strategist at Westpac Banking Corp. "There's heaps of cheap money around the world and it's all looking for somewhere to park where there are decent interest rates. In relative terms, every time a central bank cuts their rates more it just makes the kiwi look better."

The overnight index swaps market has priced in an 86 percent chance the OCR will be cut a quarter point to 2 percent at the Aug. 11 review and a 14 percent chance of a steeper cut to 1.75 percent, according to Reuters data. Wheeler signalled a rate cut was imminent in his unscheduled economic update last month saying “further easing was likely”.

New Zealand's two-year swap rate fell about 2 basis points to 1.98 percent, near an all-time low, and the 10-year swaps fell 4 basis point to 2.41 percent.

The US economy probably added 180,000 jobs last month, enough to indicate the American labour market is in reasonable heart. But Speizer said expectations for a hike have been pushed back, with December "still a decent possibility".

The local currency fell to 93.97 Australian cents from 94.18 cents yesterday and traded at 72.75 yen from 72.63 yen. It gained to 64.60 euro cents from 64.28 cents yesterday and rose to 4.7794 Chinese yuan from 4.7564 yuan. The trade-weighted index rose to 76.25 from 76.05.

BusinessDesk.co.nz

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