NZ dollar continues to peter out against greenback as RBA stays on hold

Tuesday 4th July 2017

The New Zealand dollar remained under pressure against the greenback after the Reserve Bank of Australia stuck to its neutral tone and kept rates on hold, putting the Australasian nations at odds with a growing tide of central banks in talking up higher interest rates.

The kiwi fell to 72.70 US cents as at 5pm in Wellington from 72.94 US cents at 8am and 73.17 cents late yesterday. It traded at 95.31 Australian cents from 95.34 cents late yesterday, paring an intraday loss that saw it trade near 94.80 cents immediately before the RBA announcement.

The RBA's neutral tone contrasts with a shift in tone at the Bank of England, the Bank of Canada and the European Central Bank toward possible rate increases, helping push US bond yields higher and underpinning demand for the greenback.

Stuart Ive, OMF private client adviser, said the fact that the Reserve Bank of New Zealand is also "on the fence" regarding rate increases by forecasting no change in rates until September 2019 has seen the kiwi's "lofty levels peter down," particularly against the greenback.

The move is primarily due to a surge in yields in the US bond market after recent data, including last night's manufacturing data, has people focused more on growth than inflation in the US, Ive said.

Overnight, figures showed the US ISM manufacturing index rose to 57.8 in June, the highest since August 2014 and ahead of expectations of 55.2. Ive said strong US jobs data at the end of the week would solidify the view that the US Federal Reserve remains on track to continue lifting rates.

Domestically he said investors will be watching for the GlobalDairyTrade auction later in the global trading day although given that the prices are expected to be largely flat, there is unlikely to be much reaction.

The focus will also be on comment from the Swedish Central Bank - Riksbank - due to publish its rate decision. "People are looking to them to see if any of that hawkish sentiment is filtering through," he said. US markets, however, are closed for the Independence Day holiday.

The trade-weighted index was at 78.08 from 78.36 yesterday. The kiwi fell to 4.9406 yuan from 4.9642 yuan, declined to 63.93 euro cents from 64.10 cents, and dipped to 56.15 British pence from 56.29 pence. The kiwi traded at 82.24 yen from 82.33 yen yesterday.

New Zealand's two-year swap rate fell 5 basis points to 2.31 percent while the 10-year swap fell 5 basis points to 3.36 percent.

(BusinessDesk)

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