NZ dollar rises, recovering from post-GDP drop as Fed looms

Thursday 17th September 2015

The New Zealand dollar rose, recovering all of the ground lost in the wake of weaker than expected economic growth figures, as order flows drove up the currency ahead of the Federal Open Market Committee decision tomorrow.

The kiwi advanced to 63.61 US cents as at 5pm in Wellington, having fallen as low as 63.31 cents after the growth report, from 63.48 cents late yesterday. The trade-weighted index was little changed at 68.74, having recovered from as low as 68.42.

Gross domestic product rose 0.4 percent in the second quarter, picking up from a 0.2 percent pace three months earlier, but slower than the Reserve Bank's expectation of 0.6 percent. Traders are looking for signs the economy has enough slack to justify a further quarter point cut to the official cash rate that the Reserve Bank has flagged, with some in the market predicting deeper cuts at a time when the Fed is preparing to hike.

"GDP was weak to everyone's surprise including the Reserve Bank, so it is significant," said Imre Speizer, a strategist at Westpac Banking Corp. Investors are "nervous" ahead of the Fed statement, with opinion divided on whether it moves to hike this week. "You're probably going to get a reaction either way. If they go, the kiwi dollar falls."

Westpac is forecasting the Reserve Bank cuts the OCR again in October and December, eventually pushing the benchmark rate down to a record low 2 percent. The lender is predicting the kiwi falls to 60 US cents by the end of the year. Speizer said the local dollar rebounded this afternoon on what looked to be a large kiwi buy order, "some kind of financial insto-type order".

The kiwi fell to 88.49 Australian cents from 88.83 cents yesterday.

The local currency increased to 4.0523 Chinese yuan from 4.0416 yuan yesterday, and gained to 76.73 yen from 76.27 yen. It slipped to 41.02 British pence from 41.33 pence yesterday, and rose to 56.31 euro cents from 56.19 cents.

The two year swap rate was unchanged at 2.74 percent and 10 year swaps rose 2 basis points to 3.66 percent.

BusinessDesk.co.nz

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