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NZ dollar falls as ECB comments help lift greenback

Friday 21st October 2016

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The New Zealand dollar fell against a broadly stronger US dollar after the European Central Bank said it was in no hurry to end quantitative easing measures, although the local currency is still on track for a 1.2 percent weekly gain.

The kiwi fell to 71.72 US cents as at 5:00pm in Wellington from 72.40 cents late yesterday. The trade-weighted index slipped to 77.20 from 77.58.

The ECB kept its policy settings unchanged, with a refinancing rate at zero. President Mario Draghi said the bank would probably 'taper' its QE measures, which Bloomberg reported as meaning  the stimulus programme could run beyond its March 2017 end date. By contrast, the US Federal Reserve is flagging an interest rate hike before the end of the year. The US dollar index rose to an eight-month high.

"A strong US dollar across the board is the major theme of the day," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.The kiwi "may have been looking a little over-valued compared with some of the other currencies."

The kiwi got an early fillip this week with stronger-than-expected inflation figures for the third quarter and then weaker-than-expected Australian labour market data, which lifted the kiwi against its Australian counterpart. It trimmed those gains ahead of the three-day weekend that includes Labour Day on Monday.

The kiwi traded at 93.97 Australian cents, down from 94.34 cents yesterday, which was the highest since Oct. 10.

The Australian economy shed 9,800 jobs in September from August, following a 9,000 drop the previous month. The unemployment rate unexpectedly fell to 5.6 percent, although that largely reflected a decline in the participation rate. While traders expect the Reserve Bank of Australia has finished cutting rates for now, a cut is still seen as a risk. By contrast, a rate cut by the New Zealand central bank at the Nov. 10 monetary policy statement is largely priced into the currency, traders said.

The kiwi dollar fell to 58.59 British pence from 58.90 pence yesterday. It slipped to 65.75 euro cents from 65.96 cents and fell to 74.69 yen from 74.96 yen. The kiwi declined to 4.8446 yuan from 4.8773 yuan.

New Zealand’s two-year swap rate fell 1 basis point to 2.04 percent and 10-year swaps fell 2 basis points to 2.69 percent.

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