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NZ dollar gains as global political uncertainty weighs on greenback

Monday 28th May 2018

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The New Zealand dollar rose amid heightened geopolitical uncertainty with the prospect of Spain and Italy going back to the polls, continuing trade talks between the US and China, and an unclear outcome on whether the US will meet with North Korea. 

The kiwi gained to 69.51 US cents as at 5pm in Wellington from 69.20 cents at 8am and 69.16 cents on Friday in New York. The trade-weighted index advanced to 72.86 from 72.62 last week. 

Public holidays in the UK and US thinned out trading activity in the local session, with demand for the greenback dwindling amid an uncertain outlook for politics around the world. In Europe, political parties are lobbying for new elections, while investors are focused on the ongoing trade talks between the US and China, and whether US President Donald Trump will meet his North Korean counterpart Kim Jong-un. The greenback was also weighed by the prospect of increased oil production from the OPEC nations and Russia, which would remove some inflationary pressure in the world's biggest economy, where the Federal Reserve is in a cycle of raising interest rates. 

"These competing forces make the market seem a little bit range-bound and until you get a decent breakout," said Mark Johnson, senior trader foreign exchange at OMF in Wellington. "The kiwi's in consolidation mode for now - when you look over the last five or six weeks, it's dropped 550 (basis) points so it's not unreasonable to expect some consolidation." 

The local currency barely budged after the government announced it will try to eradicate the Mycoplasma bovis outbreak at a cost of $886 million over the next decade. That was cheaper than the $1.2 billion price tag of long-term management, although Johnson pointed out New Zealand would be the first country eradicate the disease if it's successful. 

The kiwi increased to 91.74 Australian cents from 91.41 cents last week, and gained to 4.4424 Chinese yuan from 4.4119 yuan. It traded at 59.30 euro cents from 59.24 cents last week and rose to 52.11 British pence from 51.84 pence. The kiwi jumped to 76.07 yen from 75.51 yen. 

New Zealand's two-year swap rate increased 1 basis point to 2.19 percent, and 10-year swaps fell 1 basis point to 3.13 percent. 



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