NZ dollar heads for 1.8% weekly drop on political uncertainty, stronger greenback

Friday 29th September 2017

The New Zealand dollar is heading for a 1.8 percent weekly decline amid domestic political uncertainty and a stronger US dollar as investors price in a greater chance of a US rate hike December.

The kiwi was trading at 72.10 US cents as at 5pm in Wellington from 71.92 cents late yesterday and from 73.39 a week ago. The trade-weighted index rose to 76.11 from 76.03 yesterday.

The greenback is benefiting as Fed funds futures now imply around a 73 percent chance of a Fed rate hike at the Dec. 12-13 policy meeting after strong data and a raft of Fed speakers this week. President Donald Trump’s proposals for tax cuts also helped shore up the greenback, although the lack of detail on how it will be funded is limiting the gains, traders said. The New Zealand dollar, meanwhile, is likely to be restrained as both the National Party and the Labour-Green bloc seek to form a government with New Zealand First, led by Winston Peters.

"Going into next week, the kiwi remains vulnerable to the downside as we await the outcome of where New Zealand First will lay their hat," said Stuart Ive, OMF private client adviser. Peters has said he won't make a decision until all votes are counted on Oct. 7.

Looking ahead, Ive said investors will be watching for US data later in the global trading day such as the US PCE deflator figures. Economic growth figures out of Canada will also be watched as will inflation data out of Europe. He noted that end of month and end of quarter positioning will also be a factor.

He noted that while headlines about the standoff between North Korea and the US have abated, investors will be keeping a wary eye on the situation.

The kiwi traded at 61.19 euro cents from 61.31 cents and at 53.75 British pence from 53.76 pence. It traded at 81.20 yen from 81.28 yen, at 91.91 Australian cents from 91.92 cents and gained to 4.8141 yuan from 4.7879 yuan.

The two-year swap rate was unchanged at 2.20 percent and 10-year swaps were unchanged at 3.25 percent.

(BusinessDesk)

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