NZ dollar trade-weighted index breaches 76 for first time since May 2015

Thursday 23rd June 2016

The trade-weighted index of the New Zealand dollar rose above 76 for the first time in 13 months and is now almost 5 percent above the average level the Reserve Bank projected for the second quarter as polls showed the Brexit vote is too close to call and the International Monetary Fund lowered its US growth forecast.

The TWI rose as high as 76.06 and was at 75.91 as at 8am in Wellington, from 75.87 late yesterday. The New Zealand dollar climbed to 71.88 US cents, a 12-month high, from 71.45 cents.

The latest two polls put the 'leave' option, or Brexit, has slightly more support than Britain remaining in the European Union. A TNS survey had 'leave' on 43 percent to 41 percent for 'remain while an Opinium showed 45 percent support for a Brexit and 44 percent for 'remain'. The kiwi edged up to 48.72 British pence from 48.64 pence amid reports some Britons were selling sterling for the euro and other currencies ahead of the vote. The greenback fell after the IMF cut its US growth forecast this year to 2.2 percent from 2.4 percent.

"Seemingly on a trajectory towards 72 US cents, the kiwi is flying again as relatively solid yields and more of a risk-on tone returns to markets," Sharon Zollner, senior economist at ANZ New Zealand, said in a note. "But truly 'anything could happen'; over the next two days. If your business couldn’t handle that, you might want to take cover."

While financial markets have latched onto polls showing the vote is too close to call, bookies in the UK have the odds of remaining in the EU as a clear winner, with odds of just 25 percent for a Brexit when the results are known tomorrow NZ time. A leave vote would unsettle markets, raising the possibility of other defections from the regional economic bloc and potentially undermining the pound and the euro.

"Financial market participants are holding their collective breath," Zollner said. "With liquidity already lower and volatility higher, a leave vote, should it eventuate, would most certainly throw the cat bodily among the pigeons."

The kiwi fell to 95.36 Australian cents from 95.71 cents yesterday. It was little changed at 63.37 euro cents from 63.41 cents, rose to 74.74 yen from 74.61 yen and gained to 4.7090 yuan from 4.7022 yuan.

BusinessDesk.co.nz

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