NZ dollar trades in tight range vs greenback, falls vs pound as Brexit vote looms

Tuesday 21st June 2016

The New Zealand dollar traded in its tightest daily range against the greenback this year and fell against the pound as Britain's looming referendum on whether to leave the European Union cast a shadow over financial markets.

The kiwi dollar traded at 71.12 US cents as at 5pm in Wellington, from 71.17 cents late yesterday, having moved in a range of just 23 points over the day. The local dollar fell to 48.51 British pence, from 48.77 pence yesterday.

Bookmakers have average odds of 26 percent on Britain leaving the EU, dubbed a Brexit, based on a Bloomberg index that compiles the odds from a range of leading firms accepting bets. That's down from a peak of 43 percent on June 14, before the murder of Labour MP and EU supporter Jo Cox and is out of whack with recent opinion polls which put the odds closer to 50-50. The shortening odds of a remain vote, dubbed 'Bremain', has pushed the pound to near a month-high against the greenback and saw equity markets gain on both sides of the Atlantic. Voting closes at 10am on Friday, NZ time.

"There will be a market reaction either way," said Imre Speizer, senior market strategist at Westpac Banking Corp. "An exit would see a significant 'risk-off' reaction in commodities, equities, the kiwi and the Aussie. If they stay, the opposite will happen, although the upside will be smaller than the downside."

Speizer said some traders had made specific bets that Britain will vote to leave the EU "and all those bets, when proven wrong, will have to be unwound". The response from a Bremain vote was likely to be very short-term.

The local currency fell to 95.04 Australian cents from 95.52 cents yesterday after the release of the minutes to the Reserve Bank of Australia's last policy meeting, which showed no strong mood to cut interest rates again.

The kiwi slipped to 4.6462 Chinese yuan from 4.6794 yuan yesterday and dropped to 74.09 yen from 74.46 yen. It increased to 62.72 euro cents from 62.51 cents yesterday. The trade-weighted index was little changed at 75.40 from 75.56 yesterday.

New Zealand's two-year swap rate rose 2 basis point to 2.29 percent and the 10-year swaps rose 3 basis points to 2.81 percent.

BusinessDesk.co.nz

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