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NZ dollar dips as policymakers grumble over global currency volatility, US reopens

Wednesday 17th January 2018

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The New Zealand dollar edged lower as Japanese and European policymakers raised concerns over excessive volatility in currency markets and as US investors returned from a long weekend. 

The kiwi decreased to 72.84 US cents from 72.91 cents yesterday while the trade-weighted index was at 74.99 from 75.07. 

US investors were back at work after the Martin Luther King Jr holiday on Monday, halting the sell-off in the greenback over recent days and taking stocks on Wall Street to new records. The euro and yen have been beneficiaries of a weak US dollar, dragging other currencies such as the kiwi higher, but that rally paused as Japan's Finance Minister Taro Aso told reporters big swings in currencies were problematic, while European Central Bank council member Francois Villeroy de Galhau was wary of the inflationary impacts of a stronger euro. 

"The USD sell-off paused for a breather. It was helped by comments from Japanese FM Aso that sudden moves in currencies are a problem," ANZ Bank New Zealand rural economist Con Williams said in a note. "The NZD/USD is expected to now consolidate in recent ranges as it awaits some top-tier domestic data and/or takes its cue from the USD and EUR."

Currency traders largely ignored the GlobalDairyTrade auction, which showed a 4.9 percent increase in the trade-weighted index as reduced supply across all products led to a broad-based increase in prices. The ANZ commodity price index today will be watched to see how prices for New Zealand's non-dairy primary exports are tracking. 

Bank of New Zealand currency strategist Jason Wong said futures pricing indicated higher prices at the auction, although investors had been sceptical given the futures market had overshot recent auction prices. 

"Fonterra’s reduction in volume offered because of drought conditions and the steep fall towards the end of last year go some way in explaining the rebound in pricing," Wong said. 

Investors will be watching the upcoming Bank of Canada policy review, which is expected to hike the benchmark interest rate a quarter-point to 1.25 percent. New Zealand and Australia's central banks still hold neutral interest rate outlooks, although there's a growing trend around the world towards tighter monetary policy. The kiwi fell to 90.40 Canadian cents from 90.63 cents yesterday. 

The local currency was little changed at 91.45 Australian cents from 91.54 cents yesterday and increased to 4.6905 Chinese yuan from 4.6848 yuan. It traded at 59.37 euro cents from 59.47 cents yesterday and was little changed at 52.79 British pence from 52.88 pence. The kiwi declined to 80.47 yen from 80.89 yen yesterday. 


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