NZ dollar little changed, may rise on signs economy strong fast enough to rule out rate cuts

Thursday 15th September 2016

The New Zealand dollar was little changed and may rise on signs the economy is growing at a fast enough clip to rule out any further cut to interest rates in the near term

The kiwi traded at 72.66 US cents as at 5pm in Wellington from 72.60 cents late yesterday. The trade-weighted index edged up to 77.63 from 77.59.

Government figures showed the economy grew 0.9 percent in the second quarter, slower than the market's expectation of 1.1 percent growth but faster than the central bank's 0.8 percent forecast. At the same time, first-quarter growth was revised up to 0.9 percent from 0.7 percent. The Reserve Bank next reviews interest rates on Sept. 22 but the market is betting there's more prospect of a cut at the full monetary policy statement on Nov. 10, provided economic data is weak.

"The market is almost under-appreciating the strength of that GDP number," said Sheldon Slabbert, sales trader at CMC Markets NZ. "I think the kiwi will potentially trade higher once the market appreciates the number for what it is. It is strong enough to nullify any rate cut next week."

Slabbert expects the New Zealand dollar to trade above 72 US cents , "for the time being at least", with next week likely to see the Federal Reserve holding off on raising US interest rates and the Reserve Bank refraining from a cut, a combination of events "that will certainly work in the kiwi's favour."

While there was a chance the Reserve Bank would cut interest rates again next year, it appeared to be at or near the end of its easing cycle, along with the Reserve Bank of Australia, he said.

The local currency dipped as low as 97.06 Australian cents after the GDP data before recovering after Australia posted figures showing that economy shed 3,900 jobs last month, while the unemployment rate slipped to 5.6 percent. It traded recently at 97.27 Australian cents from 97.09 cents late yesterday.

The kiwi traded at 4.8456 yuan from 4.8444 yuan and fell to 64.59 euro cents from 64.70 cents. It fell to 54.81 British pence from 55 pence and declined to 74.39 yen from 74.77 yen.

New Zealand's two-year swap rate rose 3 basis points to 2.06 percent and 10-year swaps gained 1 basis point to 2.6 percent.

BusinessDesk.co.nz

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