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NZ dollar jumps to two-week high vs pound on Bank of England rates outlook

Friday 3rd November 2017

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The New Zealand dollar gained to a two-week high against the pound after the Bank of England raised interest rates for the first time in more than 10 years but said further hikes would be gradual, a more dovish view than the market was expecting.

The kiwi rose to 52.94 British pence as at 8am in Wellington from 52.10 pence late yesterday. It traded at 69.14 US cents from 69.22 cents yesterday and the trade-weighted index was little changed at 73.23 from 73.22.

Policymakers at the BoE voted seven-two to increase its benchmark bank rate a quarter point to 0.5 percent, having cut the rate by that amount in the wake of the Brexit vote last year. The bank said members were unanimous that any further increases "will be at a gradual pace and to a limited extent."

The kiwi dollar has recovered some ground against the greenback after sinking to a 17-month low last week amid concern the policies of the new government may help keep interest rates lower for longer. Still, there are signs New Zealand inflation may be picking up. Reports that US President Donald Trump has selected Jerome Powell as the next chair of the US Federal Reserve, a candidate seen to favour only gradual rate hikes, and concern US tax cut plans will struggle to gain traction have weighed on the greenback.

The pound "was slammed after the BoE’s 'dovish hike' and the markets sees the US tax bill as a bit underwhelming, keeping the USD in check and helping nudge US Treasury yields lower," said Jason Wong, a currency strategist at Bank of New Zealand, in a note. "We think there’s room for the NZD to recover further as domestic political risks fade, with an eye on next week’s RBNZ MPS as an additional possible source of upward pressure."

The Reserve Bank releases its monetary policy statement on Nov. 9 and the review is expected to reflect a much weaker TWI track than it had been forecasting, which suggests more imported inflation, while figures this week showed wage pressure starting to stir.

With no scheduled economic news out of New Zealand today, traders are awaiting the release tonight on US employment figures. The Labor Department’s payrolls report is expected to show growth of 303,000 jobs in October, compared to a drop of 40,000 the month before. Total non-farm employment is expected to have increased by 312,000, according to economists polled by Reuters.

The kiwi slipped to 59.28 euro cents from 59.38 cents. It traded at 89.61 Australian cents from 89.59 cents and at 4.5579 yuan from 4.5664 yuan. It was little changed at 78.79 yen from 78.80 yen yesterday.


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