NZ dollar dips as shift in global rate outlook takes hold

Monday 3rd July 2017

The New Zealand dollar dipped at the start of the new quarter as the mounting rhetoric among central bankers for interest rates to rise puts the Reserve Bank's 'neutral' policy stance out of step with its peers.

The kiwi slipped to 73.16 US cents as at 8am in Wellington from 73.32 cents on Friday in New York and down from 72.28 cents at the local close last week. The trade-weighted index was at 78.33 from 78.25 last week.

US bond yields rose on Friday for a fourth straight day with 10-year Treasuries closing the week at 2.3 percent as central bankers last week talked up the prospect of higher interest rates after running near-zero policies for almost a decade. While that's at odds with Reserve Bank governor Graeme Wheeler's neutral bias, New Zealand's 10-year swap rate has jumped 23 basis points to 3.35 percent since June 27 and two-year swaps have climbed 12 basis points to 2.32 percent since June 28.

"The global bond market sell-off – led by Europe – has had a significant impact on the NZ rates curve, even as the RBNZ hasn’t joined in. Indeed, it was only a little over a week ago that the Bank reiterated its clear 'neutral' policy guidance," Bank of New Zealand currency strategist Jason Wong said in a note. "OIS pricing now shows a full rate hike is priced in by May 2018, some three months earlier than the market had priced in earlier in the week, and some 18 months earlier than the RBNZ has guided."

International news is expected to drive the local currency's movements this week, although US markets will be closed on Tuesday for the Independence Day holiday.

Domestic data highlights this week include the New Zealand Institute of Economic Research's quarterly survey of business opinion tomorrow, which is expected to show ongoing optimism among local firms, and the GlobalDairyTrade auction on Tuesday in the US.

The kiwi declined to 95.10 Australian cents from 95.28 cents on Friday in New York as surging iron ore prices continue to bolster demand for Australia's currency. It fell to 4.9597 Chinese yuan from 4.9706 yuan.

The local currency traded at 64.04 euro cents from 64.15 cents last week and was little changed at 56.20 British pence from 56.27 pence. It fell to 81.95 yen from 82.38 yen last week.

(BusinessDesk)

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