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NZ dollar little changed near 4-month high, long positions seen capping gains

Monday 26th June 2017

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The New Zealand dollar was little changed near a four-month high and may struggle to push much higher because of the sheer weight of bets on a rise which traders say put the kiwi at more risk of a correction.

The kiwi was trading at 72.83 US cents as at 5pm in Wellington from 72.84 cents in New York on Friday and from 72.67 cents in Asia last week. The trade-weighted index was at 78.49, little changed from last week.

US Commodity Futures Trading Commission data shows that after traders had been betting against the kiwi, taking 'short' positions, they now held the highest net speculative 'long' NZ dollar positions in more than four years. Long positions are bets that a currency will rise. While there are good reasons to favour the kiwi dollar, including relatively higher interest rates and a relatively strong domestic economy, traders said the currency is at more risk of a drop given the lopsided bets on an increase.

"I'm not saying it is going to turn but this will restrict how high it goes," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. The kiwi may struggle to break through resistance at 73.50 US cents, he said.

"We've seen strong buying in our bond market in the last month or so and we're still seen as a bit of a safe haven," he said. Interest rate differentials favour the kiwi over the Australian dollar.

The kiwi slipped to 96.08 Australian cents from 96.18 cents at the start of the day to be little changed from 96.10 cents in New York on Friday. The kiwi has gained more than 5 percent from its lows against the Aussie in March.

Kelleher said US data and speeches are likely to take centre stage this week, even though New Zealand merchandise trade and dwelling consents for May and business confidence for June are scheduled to be released. 

US Federal Reserve chair Janet Yellen will deliver speech in London on Tuesday, where the topic is global economic issues and where investors will be listening for any hint of a third US rate hike this year. On Thursday, the final estimate for US first-quarter gross domestic product is expected to confirm the world's biggest economy grew 1.2 percent and on Friday, the core PCE for May, Yellen's preferred inflation measure, may print at zero.

The kiwi traded at 57.14 British pence from 57.26 pence on Friday in New York and traded at 81.04 yen from 81 yen. It rose to 4.9806 yuan from 4.9769 yuan and traded at 65.07 euro cents from 65.09 cents.

New Zealand's two-year swap rate rose 1 basis point to 2.21 percent while the 10-year swap rate rose 1 basis point to 3.14 percent.


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