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NZ dollar eases on US GDP; all eyes on Federal Reserve

Monday 29th July 2019

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The New Zealand dollar weakened slightly after data showed the US economy slowed less than expected in the second quarter but the main focus is on the Federal Reserve ahead of its rate decision this week. 

The kiwi was trading at 66.30 US cents at 7:55 am in Wellington from 66.33 cents late Friday in New York and 66.53 cents late Friday in Wellington. The trade-weighted index was at 72.93 from 72.94.

US GDP increased at an annual rate of 2.1 percent in the second quarter, down from 3.1 percent in the January-March period. However, the US dollar got a lift as economists had been expecting a lift of 1.8 percent. While the currency firmed on the data, the greenback remains fairly capped as the Federal Reserve is widely expected to cut interest rates by a quarter point at its July 30-31 meeting. 

While there is a possibility of a 50-basis point rate cut "the economic data simply hasn't been soft enough to justify anything more dramatic" than 25 points, said Mark Lister, head of private wealth research for Craigs Investment Partners. "More importantly, markets will scrutinise Powell’s commentary for any clues as to what the Fed might do next," he said. 

Along with the Fed, round 12 of the US-China trade talks are set to kick off in Shanghai this week and will also be a key focus, Kiwibank trader Mike Shirley said. 

According to the Wall Street Journal, people close to the talks believe a major breakthrough is unlikely on points that led to negotiations breaking down in early May. That includes the US insistence that China commit to legal changes to protect intellectual property and abandon state subsidies to business, and Beijing’s demands that the US drop all tariffs as a condition for a deal.

Domestically, the ANZ business outlook survey due Wednesday will garner interest as investors look to see if sentiment remains in the doldrums ahead of the corporate earnings season. 

The New Zealand dollar was trading at 95.88 Australian cents from 95.84 and was unchanged at 53.54 British pence. It was trading at 59.56 euro cents from 59.61, at 72.03 yen from 73.07 and was unchanged at 4.5625 Chinese yuan. 

(BusinessDesk)

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