NZ dollar gains against 'whippy' yen on stimulus speculation as Fed statement awaited

Wednesday 27th July 2016

The New Zealand dollar rose against the yen after a report that Japan may be preparing to announce a bigger-than-expected stimulus package on Friday.

The kiwi rose to 74.16 yen as at 5pm in Wellington, from 73.62 yen late yesterday. The local currency traded at 70.38 US cents from about 70.49 cents yesterday as traders await the results of the Federal Reserve's monetary policy review tomorrow morning NZ time.

The yen weakened after Japan's Fuji TV reported that the Ministry of Finance may announce a stimulus package of as much as 27 trillion yen (US$254 billion) while the Bank of Japan could push interest rates further into negative territory on Friday. Before that, Fed policymakers may signal that its September meeting is "live" for an interest rate hike, which could help lift the greenback, traders say.

US dollar-yen "is very whippy and very poor liquidity" ahead of the Fed statement, said Tim Kelleher, head of institutional foreign exchange sales at ASB bank. Reports of Japanese stimulus are pushing the yen around but the market is yet to see the detail and Japan has a habit of under-delivering, he said.

The market "has probably under-priced" the potential for a Fed rate hike in September and there's a risk the greenback will be stronger following tomorrow's announcement "and maybe the kiwi a bit weaker on the back of that."

The kiwi gained to 93.98 Australian cents from 93.65 cents late yesterday, having briefly spiked as low as 93.20 cents after figures showed Australia's consumer prices remained weak in the second quarter, keeping alive expectations the Reserve Bank of Australia will cut the cash rate a quarter point to 1.5 percent next week. Australia's trimmed mean CPI rose 1.7 percent from a year ago compared to economist expectations of 1.5 percent.

The trade-weighted index was little changed at 75.50 from 75.51 yesterday. The kiwi fell to 4.6947 Chinese yuan from 4.7083 yuan. It traded at 53.60 British pence from 53.76 pence yesterday and was little changed at 63.99 euro cents from 64.07 cents.

New Zealand's two-year swap rose about 1 basis point to 2.035 percent and 10-year swaps were up one basis point to 2.46 percent.

BusinessDesk.co.nz

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