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NZ dollar heads for 0.7% weekly decline as trade jitters weigh on markets

Friday 22nd June 2018

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The New Zealand dollar is headed for a 0.7 percent weekly fall after losing ground when jitters around global trade roiled markets but managed to claw back over 69 cents in Asian trading Friday. 

The kiwi traded at 69.01 US cents as at 5pm in Wellington versus 68.78 US cents as at 8am and 68.37 cents late yesterday. It traded at 69.48 cents in New York last Friday. The trade-weighted index rose to 73.33 from 72.83 yesterday.

While the kiwi fell against the greenback this week when China responded to US tariffs by imposing its own trade levies on US$34 billion of US goods and both nations stepped up their sabre-rattling,  it clawed back some of those losses overnight when US data was weaker than expected and continued to push slightly higher in Asian trading.  Overnight the Philadelphia Federal Reserve's gauge of US Mid-Atlantic business activity fell to a 1-1/2 year low of 19.9 versus expectations of a 29 reading. 

Martin Rudings, senior dealer foreign exchange at OMF, said the overnight moves "put a question market around the short-term direction" for the Kiwi, which had been viewed as negative.  "The (US) dollar has been reasonably strong of late, so there is plenty of room for it to pull back," he said.  He also noted that some of the fears around global trade had abated, which was helping risk appetite. 

While the kiwi may rebound further, Rudings said the central bank's rate review next Thursday will be weighing on investors' minds. All 14 economists polled by Bloomberg expect the official cash rate to remain at a record low 1.75 percent next Thursday and Rudings said the bank may well make a reference to the New Zealand dollar, in a bid to jawbone it even lower.  "They may want to try and maintain the pressure on the kiwi dollar... why would they not continue in that vein," he said.

Rudings said the kiwi may also come under pressure against the Australian dollar ahead of that. The kiwi traded at 93.27 Australian cents from 92.84 cents. It was at 52.00 British pence from 51.97 pence yesterday and 4.4856 yuan from 4.4375 yuan and at 75.88 yen from 75.63 yen. It rose to 59.39 euro cents from 59.12 cents.

New Zealand's two-year swap rate fell 1 basis point to 2.24 percent and 10-year swaps fell 3 basis point to 3.11 percent.


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