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NZ dollar pushes higher against yen, benefiting from domestic data

Monday 19th June 2017

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The New Zealand dollar extended its gain against the yen, benefiting after the Bank of Japan left its ultra-loose monetary policy unchanged last week domestic data painted an upbeat outlook ahead of this week's local interest rate review.

The kiwi rose to 80.76 yen as at 5pm from 80.34 yen late Friday. It was trading at 72.78 US cents from 72.48 cents Friday and at 95.50 Australian cents versus 95.06 Australian cents.

Economists expect New Zealand's Reserve Bank to keep rates on hold at 1.75 percent and to reiterate that any rate hikes are well down the track, although some anticipate inflationary pressures will lead to an earlier tightening cycle than projected. In contrast, the Bank of Japan maintained its quantitative easing programme and extraordinarily low interest rate policy last Friday, at a time when other major central banks are moving to lift rates.

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, said it was unusual to see the kiwi so bid against the yen ahead of the central bank's rate decision on Thursday.

Kelleher said the kiwi's strength on the yen cross “could be M&A or balance sheet related” with demand largely coming from offshore, and was broadly stronger against most currencies.

"It's been orderly. It's not gapping higher but it's not backing off," he said, adding it could have further to run as “it has lots of momentum into Europe.” Kelleher said if the kiwi pushes above 73 US cents it will open up last week's four-month high of around 73.20.

Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong, said domestic data had played a role in the kiwi's popularity on the day. “We had some peripheral domestic data out, the Westpac Q2 consumer confidence and the PSI, both of which were positive and outstripped modest expectations and were a significant step up from the previous readings. In a day devoid of any directional cues, that looks to be the primary reason,” she said.

New Zealand's services sector, which accounts for about two-thirds of the economy, bounced back in May after a number of external factors, such as the weather, corrected themselves while New Zealand consumer confidence gained in the June quarter and reached its highest level since early 2015.

Looking ahead, markets are awaiting comments by New York Fed President William Dudley, a close ally of Fed chair Janet Yellen, when he speaks at a business roundtable in New York state. Kelleher said there will also be some focus on the dairy auction overnight Tuesday.

NZX futures are pointing to an unchanged outcome for whole milk powder and a 1 percent lift in the overall index, according to ANZ Bank. “Dairy markets remain largely in a holding pattern with steady demand as they awaiting new supply information,” it said.

The trade-weighted index gained to 78.22 from 77.92 and the kiwi rose to 56.96 British pence from 56.44 pence and traded at 65.01 euro cents from 64.73 cents. The kiwi rose to 4.9570 yuan from 4.9357 yuan.

New Zealand's two-year swap rate rose 5 basis points to 2.20 percent while the 10-year swap rate rose 1 basis points to 3.15 percent.


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