NZ dollar little changed as market rethinks depth of rate cuts

Tuesday 25th October 2016

The New Zealand dollar was little changed as investors scale back their expectations for how low local interest rates will go, although US politics and monetary policy continue to dominate global markets.

The kiwi traded at 71.48 US cents at 5pm in Wellington from 71.31 cents at 8am and 71.57 cents in late Asian trading yesterday, when local markets were closed for Labour Day. The trade-weighted index was little changed at 77.04 from 77.12.

ANZ Bank New Zealand economists have dropped their prediction for New Zealand's Reserve Bank to cut the official cash rate in February, and are now projecting a reduction next month to 1.75 percent, ending the current easing cycle. The RBNZ today said it would replace the projected track of the 90-day bank bill rate with an OCR projection from November to improve transparency of expected policy actions.

The US Dollar Index, a measure of the greenback against a basket of currencies, continues to trade near a 10-month high, buoyed by the prospect of the Federal Reserve raising rates later this year and Democrat candidate Hillary Clinton winning the presidential election.

"The kiwi's looking reasonably chipper, but the key macro-events are going to be the Fed on the second of November and then the presidential election - a Clinton victory is looking the more likely outcome, but never say never," said Mark Johnson, senior dealer foreign exchange at OMF in Wellington. "The kiwi's still in the broad 70-to-73 (US cents) band."

New Zealand's two-year swap rate rose one basis point to 2.06 percent, and 10-year swaps were unchanged at 2.68 percent.

The local currency fell to 93.79 Australian cents from 94.03 cents late yesterday and declined to 4.8435 Chinese yuan from 4.8485 yuan. The kiwi dollar decreased to 58.46 British pence from 58.66 pence yesterday was little changed at 65.72 euro cents from 65.85 cents. It rose to 74.66 yen from 74.39 yen.

BusinessDesk.co.nz

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