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NZ dollar at 6-week high after dovish Fed, S&P lifts outlook on NZ

Thursday 31st January 2019

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The New Zealand dollar was trading at a six-week higher after jumping when the US Federal Reserve sounded a more cautious note on future rate increases and after Standard & Poor's revised New Zealand's outlook to positive on its improving fiscal position.

The kiwi traded at 69.15 US cents at 5pm in Wellington from 69.02 US cents at 8.30am in Wellington and 68.39 US cents yesterday.  The trade-weighted index gained to 74.24  from 73.78 yesterday.

The New Zealand dollar pushed higher early when the Fed said "in light of global economic and financial developments and muted inflation pressures, the committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes." 

Kiwibank dealer Mike Shirley said "the bulk of the move stemmed from the Fed's announcement, given the dovish stance." 

However, it got a further leg up when Standard & Poor's lifted New Zealand's outlook to positive. The ratings agency said New Zealand's government budget could achieve a surplus over the next few years, which would provide the sovereign with additional resilience to macroeconomic or financial sector risks should they arise. " As a result, we are revising our outlook on the sovereign long-term ratings to positive from stable," it said. 

Shirley said that "basically means there is a one in three chance we will be upgraded by one notch within the next two years."

Finance Minister Grant Robertson noted it was the strongest stance Standard & Poor's has had on New Zealand since September 2011. "Today’s outlook revision from S&P is another sign that New Zealand’s economic fundamentals are strong,” Robertson said. 

Looking ahead, Shirley said investors will be watching for the personal consumption expenditure price index, considered one of the Fed's favored measures, which is due later in the global trading day, followed by non-farm payrolls overnight Friday. This is particularly true after the Fed today said it will "assess realized and expected economic conditions," including  measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Investors are also keep a close eye on eye headlines as further China-US trade talks get underway. 

The kiwi traded at 95.13 Australian cents from 95.08 cents yesterday, and gained to 4.6339 Chinese yuan from 4.5926 yuan. It rose to 75.28 yen from 74.79 yen. The local currency advanced to 52.65 British pence from 52.27 pence yesterday and increased to 60.11 euro cents from 59.79 cents.

The two-year swap rate is at 1.9000 percent from 1.9163 percent late yesterday; the 10-year swap rate is at 2.5150 from 2.5600.


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