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Weak NZ dollar gains respite from better-than-expected Chinese data

Monday 2nd September 2019

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The New Zealand dollar rose after surprisingly strong manufacturing data from China lifted it slightly out of the doldrums, but the prevailing sentiment remains negative.

The kiwi was trading at 63.07 US cents at 5:05pm in Wellington from 62.93 cents at 7:55am. The trade-weighted index was at 70.58 from 70.44.

The currency fell as low as 62.91 US cents on Friday, the first time it had fallen below 63 in four years. The average level for the currency in the past 10 years was 73 US cents.

In China, the Caixin/Markit factory purchasing manager’s index published today came in at 50.4 points for August, better than the 49.8 reading analysts had expected and up from 49.9 in July. A reading above 50 indicates expansion while anything less indicates contraction.

The Caixin survey is a private sector one that features a bigger mix of small and medium-sized firms while the official China PMI survey typically polls a large proportion of big businesses and state-owned enterprises.

The official PMI for August showed a fall to 49.5 points from 49.7 in July, China’s National Bureau of Statistics said on Saturday.

“It’s very much at the margin but it’s a positive sign,” says Mike Shirley, a dealer at Kiwibank.

China is the largest trading partner of both New Zealand and Australia and Australia is New Zealand’s second-largest trading partner.

Trading into tomorrow is likely to remain subdued as the US and Canadian markets will be closed for their Labor Day holidays.

On the negative side, new US tariffs on Chinese imports and retaliatory tariffs from China on US imports came into effect yesterday with further tariffs from both sides set to kick in before the end of the year.

And the latest domestic business confidence survey out last week showed New Zealand businesses are sinking deeper into gloom, with the Reserve Bank's 50 basis point cut in its official cash rate seeming not have provided the stimulation the central bank intended.

The kiwi was at 4.5140 Chinese yuan from 4.5022, at 66.94 yen from 66.71, at 93.70 Australian cents from 93.69 cents, at 57.37 euro cents from 57.24 and at 51.85 British pence from 51.83.

The two-year swap rate fell to a bid price of 0.8969 percent from 0.9053 on Friday and 10-year swaps were unchanged at 1.1850 percent. The two-year swap started August at 1.2247 percent and the 10-year at 1.6325 percent.


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