NZ dollar extends gains vs pound

Monday 27th June 2016

The New Zealand dollar extended its gains against the pound, reaching a new 2 1/2-year high as financial markets caught up with a full weekend of debate over the ramifications of the Brexit, including the risk that other European Union nations could consider leaving the regional economic bloc.

The kiwi rose to 52.78 British pence as at 5pm in Wellington, and earlier touched 52.98 pence, surpassing Friday's peak to reach the highest level since October 2013, from 52.11 pence on Friday in New York. The local currency slipped to 70.63 US cents from 71.30 cents at the end of last week.

Since the UK's Brexit vote last week, politicians in Denmark, Italy and France have called for their countries to follow. While the calls came mainly from leaders of minor parties, a meeting of foreign ministers of the EU's six founding members - France, Germany, Italy, the Netherlands, Belgium and Luxembourg did call for a speedy EU exit by the UK. But the UK also faces its own internal issues, with Scotland's first minister Nicola Sturgeon making steps to try to keep her country in the EU, while suggesting a second referendum on whether to leave the UK. Meanwhile, Northern Ireland's Deputy First Minister and Sinn Fein leader Martin McGuinness called for a referendum on a united Ireland.

"The market hasn't had a chance to digest all the information coming out," said Michael Johnston, senior trader at HiFX. "There's still a lot more uncertainty out there. It's like pulling that little thread on a big cloth and maybe the whole thing could unravel."

There was a chance the kiwi could fall further against the greenback because at the margin there was an increased chance that the Reserve Bank will cut the official cash rate at its Aug. 11 policy review, having held the OCR unchanged at 2.25 percent on June 9, he said. Prospects of a rate cut in August would be increased if the consumers price index for the second quarter, due on July 18, showed inflation has remained benign, he said.

New Zealand swap rates tumbled on Friday in the wake of the Brexit vote on speculation the US Federal Reserve will be less likely to raise interest rates and the RBNZ more likely to cut. Two-year swaps fell 3 basis points today to 2.14 percent and 10-year swaps fell 3 basis points to 2.62 percent.

The local currency was little changed at 64.08 euro cents from 64.12 cents on Friday. It fell to 95.32 Australian cents from 95.47 cents last week and dropped to 71.79 yen from 72.86 yen. The kiwi fell to 4.6904 Chinese yuan from 4.7165 yuan last week.

BusinessDesk.co.nz

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