NZ dollar gains on signs of robust economy, while Fed hikes wait on run of strong data

Wednesday 31st August 2016

The New Zealand dollar gained, recovering from an earlier decline, on optimism the domestic economy is continuing to show signs of sturdy growth, while Federal Reserve rate hikes depend on future data.

The kiwi traded at 72.51 US cents as at 5pm in Wellington, up from 72.15 cents at the start of the day and from 72.47 cents late yesterday. The trade-weighted index gained to 77.36 from 77.18.

Traders are awaiting US non-farm payrolls figures at the end of the week for further clues to the timing of Fed rate hikes. The US economy probably added 180,000 jobs this month, down from 255,000 in July and possibly not enough to convince the market that a September hike is on the cards. By contrast, the ANZ Business Outlook of New Zealand business confidence this month showed an increase in the own activity measure, even while the headline figure was little changed, adding to a strong run of upbeat indicators.

"The issue is still really the Fed and whether or not they are going to be tightening," said Philip Borkin, senior economist at ANZ Bank New Zealand. A strong non-farm payrolls number may cause more people to think the Fed could move in September but the market consensus of 180,000 is "right on the cusp" and is more consistent with a hike later in the year, he said.

In New Zealand, the confidence survey is "further confirmation" that the economy "is still holding up very well," he said. Traders expect the Reserve Bank will hold off cutting the official cash rate at its Sept. 22 OCR review, preferring to wait until the full monetary policy statement on Nov. 10, where the odds of a cut are about 80 percent, he said.

The kiwi rose to 74.65 yen from 74 yen late yesterday and gained to 96.29 Australian cents from 95.71 cents, breaking above 96 cents for only the second time since mid-July. The kiwi rose to 4.8388 yuan from 4.8373 yuan, was little changed at 64.94 euro cents from 64.89 cents and fell to 55.29 British pence from 55.40 pence.

New Zealand's two-year swap rate rose 2 basis points to 1.98 percent and 10-year swaps rose 1 basis point to 2.38 percent.

BusinessDesk.co.nz

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