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NZ dollar holds near 2-week high, helped by record short positions, better risk sentiment

Wednesday 11th July 2018

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The New Zealand dollar traded little changed near a two-week high as record short positioning and a modest pickup in risk appetite made up for a lack of market-moving economic data or events.

The kiwi dollar traded at 68.39 US cents as at 8:30am in Wellington from 68.45 cents late yesterday, when it peaked at about 68.60 cents, the highest since June 27. The trade-weighted index was at 72.86 from 72.85 yesterday.

Bank of New Zealand cited the US Commodity Futures Trading Commission (CFTC) data that showed in the period ended July 3 net NZD 'shorts' rose to a record 26,400. While short positions are bets on a decline in the currency, the sheer volume of such bets means there's more risk of an increase. Meanwhile, the CBOE Volatility Index (VIX) fell to about 12.6, a three-week low. The VIX, which is sometimes referred to as Wall Street's fear gauge, soared as high as 89.53 in late 2008, as the global financial crisis sent investors scrambling for safe havens.

"On a very slow news day, currencies have been tightly range-bound while US equities and UST yields have a modest upward bias," said Jason Wong, senior market strategist at Bank of New Zealand, in a note. Since July 3, the cut off for the CFTC data, "NZD has risen about 1.5 cents, so some of those shorts likely closed towards the end of last week."

The kiwi dollar fell to 51.51 British pence from 51.70 pence late yesterday, as the pound recovered some ground having sold off in the wake of resignations from British PM Theresa May's government. The pound weakened after UK Foreign Secretary Boris Johnson became the latest minister to resign from Theresa May's Conservative government over her Brexit plans. However, there is no sign as yet of a challenge to May's leadership.

With no economic data scheduled in New Zealand today the market will be looking ahead to the Westpac consumer confidence survey for Australia in July later today and figures on home loans for May. June PPI figures for the US are due out tonight while the Bank of Canada is expected to hike interest rates by a quarter point to 1.5 percent. The New Zealand dollar traded at 89.64 Canadian cents from 89.77 cents late yesterday.

The kiwi rose to 4.5333 yuan from 4.5190 yuan yesterday and slipped to 91.53 Australian cents from 91.63 cents. It traded at 76.09 yen from 76.07 yen and at 58.21 euro cents from 58.29 cents.


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