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NZ dollar treads water after rate cut turmoil

Thursday 8th August 2019

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The New Zealand dollar was little changed as the market absorbed the turmoil created in recent days by better-than-expected jobs data and the Reserve Bank’s surprise 50 basis point cut in its official cash rate.

The kiwi was trading at 64.56 US cents at 5pm in Wellington from 64.55 cents at 7:50am. It has fallen from 65.28 cents ahead of the jobs data on Tuesday and from 65.44 cents just before yesterday's rate cut announcement. The trade-weighted index was at 71.71 points from 71.77.

“I would describe it as a bit of exhaustion after the last couple of days,” says Peter Hunt, head of financial markets at Kiwibank.

The RBNZ cut its OCR from 1.5 percent to 1 percent and then the central banks of India and Thailand followed suit. Ripples of fear spread around the world, affecting both equities markets and other commodities-related currencies such as the Australian and Canadian dollars.

The slowing New Zealand economy and escalating global trade tensions, particularly between the United States and China, were major reasons for the RBNZ cutting the OCR so much – the market had been expecting a 25 basis-point cut.

China has just reported better-than-expected trade data showing its US dollar-denominated exports rose 3.3 percent in July while imports fell 5.6 percent in the month, taking its overall trade surplus to US$45.06 billion.

China’s trade surplus with the US was US$27.97 billion in July, lower than the previous month’s US$29.92 billion, the data showed

Earlier today, China’s central bank, the People’s Bank of China, set the midpoint of the trading range for the yuan above 7 to the US dollar, a signal that it might continue to weaken its currency in the face of US President Donald Trump’s tariffs on Chinese imports into the US.

That suggests a further reaction from Trump whose administration named China a currency manipulator early this week.

The New Zealand dollar was trading at 95.29 Australian cents from 95.40, at 53.08 British pence from 53.15, unchanged at 57.58 euro cents, at 68.51 yen from 68.53 and at 4.5461 yuan from 4.5560. 

The New Zealand two-year swap rate fell to another record low bid price of 0.9622 percent from 0.9850 yesterday. The 10-year swap rate also plumbed new record lows at 1.2850 percent from 1.3380.


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