NZ dollar recovers from week-low ahead of FOMC, NZ GDP as Brexit looms

Wednesday 15th June 2016

The New Zealand dollar rose from its lowest level in a week ahead of the Federal Reserve's latest policy statement in the US and economic growth figures at home and traders are bracing for more market volatility as Britain's EU membership vote looms.

The kiwi rose to 70.17 US cents from as low as 69.63 cents earlier in the day and from 70.27 cents late yesterday. The trade-weighted index edged up to 75.12 from 75.03.

Investors have been shifting more of their funds to safer assets such as the Swiss franc and the yen given risks around next week's 'Brexit' referendum in Britain and the Federal Open Market Committee's statement early tomorrow morning NZ time. In New Zealand, figures tomorrow are expected to show the economy grew 0.6 percent in the first quarter, based on the Reserve Bank's projection, from 0.9 percent three months earlier. Across the Tasman, traders are awaiting the latest employment data tomorrow.

Martin Rudings, senior foreign exchange dealer at OMF, said the Fed isn't expected to change its stance after the latest two-day policy meeting. Fed chair Janet Yellen "doesn't want to create any additional volatility ahead of the referendum in the UK next week," he said, adding that Yellen may repeat that the next move in US interest rates will be data dependent, while the July meeting remains live for a possible move.

Traders, though, are pricing just a 20 percent chance of a hike in July. Rudings said investors are favouring less risky trades and trading volumes are subdued.

"It's not about a return on your money, but a return of your money," he said.

Adding to the line-up of events in the next 24 hours is the latest GlobalDairyTrade auction overnight, at which some economists are predicting a modest increase in milk powder prices.

The New Zealand dollar rose to 95.20 Australian cents from 94.96 cents, gained to 62.62 euro cents from 62.26 cents, and rose to 49.65 British pence from 49.53 pence. It rose to 74.52 yen from 74.46 yen and fell to 4.6276 yuan from 4.6294 yuan.

New Zealand's two-year swap rate rose 1 basis point to 2.25 percent, and 10-year swaps rose 3 basis points to 2.76 percent.

BusinessDesk.co.nz

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