NZ dollar steady ahead of US vote, RBNZ call on cash rate

Tuesday 8th November 2016

The New Zealand dollar remained steady against its US counterpart ahead of voting in the American presidential election on Tuesday in the US, and the Reserve Bank of New Zealand's monetary policy statement on Thursday, when a quarter point cash rate cut to 1.75 percent is expected.

The kiwi traded at 73.24 US cents at 5pm in Wellington, up from 73.22 cents at 8am and 73.15 cents at 5pm yesterday. Traders are betting on an 88 percent probability that the RNBZ will cut the cash rate, according to Reuters data. The trade-weighted index rose to 78.58 from 78.48 yesterday.

Sheldon Slabbert, a sales trader at CMC Markets in Auckland, said: "From a domestic point of view, the RBNZ is set to cut on Thursday. The data has improved, but they're pretty adamant they're going to cut. Overall, our employment rate is still good. I fail to see why we need to extend economic emergency measures if inflation is stabilising."

He added that the kiwi could easily rise despite the potential cut. "Under the hood, if the accompanying statement is not overly dove-ish, that they’re not looking for another cut, then we could see the kiwi go above 74-plus."

The New Zealand dollar briefly rose above 74 US cents in September, and was last above that level for a sustained period in April and May 2015.

The outcome of the US election is expected on Wednesday New Zealand time. Slabbert said the worst outcome for the markets would be a long, drawn-out, contested election, but a victory for Trump would see sentiment in the markets shift sharply negative, in a similar manner to Brexit.

The kiwi continued to gain against the British pound, rising to 59.10 pence from 58.73 pence yesterday and 58.52 pence on Friday. The local currency fell against the Australian dollar to 95.12 Australian cents from 95.36 cents.

The New Zealand dollar rose to 76.51 Japanese yen from 76.26 yen and increased against the euro to 66.36 euro cents from 66.06 cents. It gained slightly against the yuan to 4.9646 from 4.9570 yuan.

New Zealand's two-year swap rate was unchanged at 2.18 percent, while the ten-year swaps gained four basis points to 2.91 percent.

BusinessDesk.co.nz

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