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NZ dollar ends the week higher as rate cut expectations fall

Friday 25th January 2019

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The New Zealand dollar is little changed today but higher than it started the week after inflation figures out on Wednesday led investors to pare back the odds of an interest rate cut this year.

The kiwi was trading at 67.73 US cents at 5pm in Wellington from 67.58 cents at 8.30am and well up from 67.45 cents in New York last Friday. The trade-weighted index eased to 73.52 points from 73.50.

“The day was choppy but the moves weren’t material,” says Kiwibank dealer Mike Shirley.

The market largely ignored data out this morning showing net immigration slowed to about 43,400 in the year ended November and that it probably peaked in 2016, a year earlier than previously thought.

The fact that the government statistician has changed its methodology in calculating the numbers probably meant the market took even less notice than it normally would, Shirley says.

Wednesday’s data showing consumer price inflation rose 1.9 percent in calendar 2018 resulted in the market re-pricing the risk of action by the Reserve Bank. It now factors in a 44 percent chance of a cut to the official cash rate this year, down from 56 percent at the end of last week.

Global news, including see-sawing hopes and fears for a settlement of the United States’ trade dispute with China, the ongoing US government shutdown and downbeat comments from European Central Bank President Mario Draghi are keeping investors on edge, Shirley says.

“It feels like the rug could be pulled out from beneath you at any time," he says. There remains “a discernible level of nervousness.” 

Overnight New Zealand time, Draghi told a news conference the risks for euro area growth are to the downside.

“The near-term growth momentum is likely to be weaker than previously expected,” Draghi said.

US Commerce Secretary Wilbur Ross also doused hopes of an imminent US-China rapprochement by saying that although progress had been made, “we are miles and miles from getting a resolution.”

The New Zealand dollar is trading at 95.26 Australian cents, down from 95.36, at 51.60 British pence from 51.80,at 59.81 euro cents from 59.80, 74.39 Japanese yen from 74.09, and 4.5882 Chinese yuan from 4.5836.

The two-year swap rate is trading at 1.8921 percent from 1.9132 yesterday. The 10-year swap rate is at 2.5450 percent from 2.5800.


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