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NZ dollar steadies after sharp fall, US bear run may not be over

Thursday 18th January 2018

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The New Zealand dollar steadied after falling more than half a US cent in the local session after traders were reluctant to take the currency through key technical levels.

The local currency dropped to 72.60 US cents as at 5pm from 73.25 cents at 8am, leaving it little changed from 72.54 cents yesterday. The trade-weighted index increased to 74.89 from 74.69 yesterday.

The greenback gained after upbeat comments from the US Federal Reserve about the outlook for the world's biggest economy, and news Apple Inc will make about US$38 billion in one-time tax payments on its overseas cash, meaning the tech company will be a buyer of US dollars. 

Alex Hill, head of dealing at HiFX, said there was no clear reason for the US dollar move. "I think you can use a bit of a scattergun approach and pin it on several reasons. The bottom line is we just saw US dollar strength after the New York close" he said. 

Hill said the kiwi and Australian dollar were both near key technical levels against the greenback, but today's decline doesn't mean they will keep falling. "When you start to bump into key technical levels of 80 US cents in the Aussie and 73 US cents in the kiwi there is a good technical argument that it has come too far. But, we would need to see it crack a lot lower to suggest the dollar bear run is over," he said. 

The Australian dollar traded at 79.54 US cents as at 5pm in Wellington versus a session high of 79.94 US cents. 

Hill said markets will be keeping an eye out for any headlines about the potential for a US federal government shutdown, which could be negative for the greenback. Earlier ANZ Bank New Zealand senior economist Philip Borkin noted the Jan. 19 deadline to avoid the federal government shutdown is "fast approaching". However, even if a deal is reached to extend funding "it is just the case of kicking the can down the road," Borkin said.

Under a shutdown many federal government functions are frozen, and many federal employees are furloughed although essential activities - such as national security - continue. 

Australian Bureau of Statistics figures showed Australia added 34,700 jobs in December, extending the run of growing economic confidence across the Tasman. The kiwi dipped to 90.96 Australian cents before recovering those losses and traded at 91.26 cents as at 5pm from 91.01 cents yesterday. HiFX's Hill said 90.80 Australian cents is the next key support level. "If it can stay above that then we might see it back up towards 92 cents," he said. 

The kiwi advanced to 4.6739 Chinese yuan from 4.6650 yuan yesterday and rose to 80.91 yen from 80.24 yen. It gained to 59.60 euro cents from 59.15 cents yesterday and was little changed at 52.58 British pence from 52.61 pence.

New Zealand's two-year swap rate rose 3 basis points to 2.24 percent while the 10-year swaps rose 2 basis points to 3.23 percent.


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