NZ dollar flatlines vs greenback as new NAFTA boosts Canadian dollar

Tuesday 2nd October 2018

The New Zealand dollar flat-lined against the greenback as a revised North American Free Trade Agreement bolstered support for Canada's currency and underpinned gains on Wall Street.

The kiwi was at 66.14 US cents as at 8am in Wellington, unchanged from yesterday's local close. It extended its decline against Canada's loonie, falling to a three-year low 84.62 Canadian cents from 84.86 cents yesterday.

A new NAFTA deal was agreed before the Sept. 30 deadline in last-minute negotiations, increasing US farmers' access to Canada's heavily protected dairy sector and excluding Mexico and Canada from any auto tariffs that may be imposed by the White House. US President Donald Trump's protectionist trade policies have discouraged investors from chasing risk-sensitive assets and the signing of the deal was seen as removing downside risk to North America's growth. Stocks on Wall Street gained with the Dow Jones Industrial Average up 0.8 percent.

"Risk appetite has been supported by news the US and Canada have come to a last-minute deal on a revised NAFTA agreement," Bank of New Zealand interest rate strategist Nick Smyth said in a note. "The Canadian dollar and Mexican peso increased accordingly, with the former around 1 percent stronger on the day and the best performing G10 currency."

The kiwi was largely unchanged against most of its trading partners ahead of the New Zealand Institute of Economic Research's quarterly survey of business opinion today. Domestic business confidence has been weak since the formation of the Labour-led government as firms remain wary that regulatory settings may impose new costs at a time when they're struggling to pass on price increases to consumers.

BNZ's Smyth said the QSBO will attract local attention given the Reserve Bank's focus on business confidence as the key downside risk facing the economy.

"We will be closely watching the own-activity indicators, including those related to employment and investment intentions, and the capacity indicators," he said.

The local currency traded at 50.71 British pence from 50.76 pence yesterday amid reports Prime Minister Theresa May will offer a compromise on the Northern Ireland border in an effort to secure a Brexit deal. The kiwi traded at 57.12 euro cents from 57.05 cents yesterday.

The New Zealand dollar was little changed at 91.51 Australian cents from 91.63 cents yesterday and almost unchanged at 75.36 yen from 75.35 yen. The trade-weighted index was at 71.90 from 71.88 yesterday.

(BusinessDesk)

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