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NZ dollar gains as dovish Fed comments point to 50-bps US cut

Friday 19th July 2019

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The New Zealand dollar rose after dovish comments from New York Federal Reserve President John Williams increased expectations for a steeper rate cut in the US at the end of the month. 

The New Zealand dollar was trading at 67.82 at 7:50am  in Wellington from 67.39 US cents at 5pm. The trade-weighted index was at 73.93 from 73.64.

Williams told the annual meeting of the Central Bank Research Association that central banks should “take swift action when faced with adverse economic conditions,” according to Dow Jones Newswires. “Don't keep your powder dry -- that is, move more quickly to add monetary stimulus than you otherwise might.”

The greenback fell, benefiting the kiwi, as markets moved to price in a greater chance of a 50 basis-point rate cut this month. 

“Kiwi continues to soar, benefitting markedly from the increasingly dovish rhetoric emanating from Federal Reserve speakers,” said ANZ FX/rates strategist Sandeep Parekh.

Markets were already expecting at least a 25-point cut by the Federal Reserve this month but pricing on a steep rate cut flipped after William’s comments.

Markets now see a 69 percent chance of a 50-point cut versus a 34 percent chance a day ago, according to CME Group’s FedWatch tool. A 25-point cut is now 31 percent priced versus 65.7 percent a day earlier.

A lack of local drivers means the kiwi will “remain at the mercy of offshore moves today,” ANZ's Parekh said. The kiwi has support at 67.10 US cents and faces resistance around the 68 cent mark, he said.

The kiwi was trading at 95.87 Australian cents from 95.85. It was at 53.99 British pence from 54.17, at 60.10 euro cents from 59.97, at 72.70 yen from 72.57, and at 4.6625 Chinese yuan from 4.6344.

(BusinessDesk)

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