NZ dollar falls after RBNZ stands pat, markets cheered by Trump's tax plans

Thursday 28th September 2017

The New Zealand dollar fell against the greenback after the Reserve Bank kept rates on hold as widely expected and reiterated hikes were not on the immediate horizon, and as investors were cheered by proposed US tax plans.

The kiwi declined to 71.92 as at 5pm in Wellington from 72.17 US cents as at 8am in Wellington and 72.09 cents late yesterday. The trade-weighted index rose to 76.03 from 75.85 yesterday.

Acting Reserve Bank governor Grant Spencer kept the official cash rate unchanged at 1.75 percent in his policy review debut as he begins a six-month caretaker stint. "Monetary policy will remain accommodative for a considerable period," Spencer said in a statement. "Numerous uncertainties remain and policy may need to adjust accordingly." Those comments were identical to the ones the central bank made in August.

Westpac Banking Corp senior strategist Imre Speizer said the statement was one of the most "transparent and unsurprising official cash rate review press releases that I have seen in a long time. It was expected to be that. It was basically a no change press release and there was no change in the market as a result."

While he said there were some minor tweaks to the language that could indicate a slight change regarding the RBNZ's growth forecasts, the shifts were too subtle to move the market.

The kiwi was also weighed down by President Donald Trump proposal for the biggest US tax overhaul in three decades, offering to lower the corporate income tax and reduce the top income tax rate for individuals as well as cut taxes for small businesses. Speizer noted the kiwi did not fall as far as other currencies like the Australian dollar.

Speizer said the New Zealand dollar has been "overly punished" in the past few weeks for election reasons and the market may have decided it had gone far enough in pricing in the uncertainty around the election. As a result, it was largely left alone.

He expects it to remain rangebound as both the National Party and the Labour-Green bloc seek to form a government with New Zealand First, led by Winston Peters. The election factor won't have any sway over the currency for the "next week until Winston (Peters) announces which way he is going to swing," said Speizer. Peters has said he won't be making any decisions until the official vote count is completed on Oct. 7.

The kiwi rose to 61.31 euro cents from 61.14 cents late yesterday and gained to 53.76 British pence from 53.63 pence. It rose to 81.28 yen from 80.99 yen, advanced to 91.92 Australian cents from 91.52 cents and gained to 4.7879 yuan from 4.7814 yuan.

The two-year swap rate rose 1 basis point to 2.20 percent and 10-year swaps gained 5 basis points to 3.25 percent.

(BusinessDesk)

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