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NZ dollar holds above 69 US cents as budget shows fiscal discipline

Thursday 17th May 2018

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The New Zealand dollar held above 69 US cents after Finance Minister Grant Robertson continued to project fiscal surpluses and a gradual reduction in debt in the government's first budget. 

The kiwi rose to 69.05 US cents as at 5pm versus 68.96 US cents as at 8am in Wellington from 68.64 cents yesterday. The trade-weighted index rose to 72.30 from 72.01 yesterday.

Robertson found an extra $24 billion to spend over the next four years by taking in more tax, reprioritising existing expenses, and thanks to delaying the previous government's debt reduction target by two years. However, net core Crown debt remains little changed over the next four years before reducing to 19.1 percent of GDP in 2022.

"The budget projections of continued fiscal surpluses and a gradual reduction in debt highlights the government’s ongoing commitment to preserving strong public finances," said Matthew Circosta, a sovereign analyst for Moody's Investors Services. The "sustained commitment to fiscal prudence provides the government room to buffer the economy from any potential future shocks, which could stem from another natural disaster or a sharp fall in global trade," Circosta said. 

"The new Labour-NZ First Government has effectively passed its first fiscal credibility test.  The Budget and the healthy forecasts show that the Government is on target to achieve its fiscal targets.  In particular, the Budget shows that net debt is on track to fall below 20% by 2021/22," said ASB Bank chief Economist Nick Tuffley. 

Westpac Banking Corp market strategist Imre Speizer said the biggest market move came in long end government bonds and swap rates after news the New Zealand Debt Management Office will increase its sale of government bonds over the next four years, while trimming short-term Treasury bills, lifting the borrowing programme by about $1 billion.

Speizer noted, however, the higher economic growth outlook gives the government more room to maneuver.

According to the Treasury, New Zealand's "GDP growth has outstripped many peers since the global financial crisis, and is expected to continue at about 3 percent average over the next five years."

New Zealand's two-year swap rate rose 2 basis points to 2.22 percent while 10-year swaps lifted 5 basis points to 3.24 percent.

The kiwi traded at 91.61 Australian cents from 91.83 cents yesterday and rose to 4.3907 Chinese yuan from 4.3704 yuan. The local currency traded at 50.97 British pence from 50.83 pence yesterday and rose to 58.40 euro cents from 58.01 cents. The kiwi climbed to 76.14 yen from 75.68 yen yesterday.


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