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NZ dollar gains against Aussie on Canberra political turmoil

Thursday 23rd August 2018

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The New Zealand dollar gained against its trans-Tasman counterpart as Australian Prime Minister Malcolm Turnbull continued to fight for his job in a fresh leadership challenge.

The kiwi traded at 91.43 Australian cents at 5pm in Wellington versus 91.08 Australian cents at 8am and from 91.10 cents late yesterday. It was at 66.68 US cents versus 67.03 US cents yesterday.

The kiwi gained favour against the Aussie as Turnbull said he will stand down if a majority of lawmakers in his centre-right party call for a leadership vote amid the resignation of several ministers. He narrowly won a leadership vote earlier this week against former home affairs minister Peter Dutton. Dutton - together with other senior ministers - then made a fresh challenge and Turnbull said if he receives a letter requesting a fresh vote he will call a party meeting for midday Friday.  

"We have definitely outperformed against the Australian dollar on the day. Jacinda and Winston look very calm compared to the Australian parliament," Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, said referring to Prime Minister Jacinda Ardern and deputy Winston Peters.

Kelleher noted the kiwi had fallen sharply against the Aussie in recent weeks after the New Zealand central bank said rates would stay on hold for longer and that a rate cut might even be on the cards. It started to gain Wednesday on much stronger-than-expected quarterly retail sales data and has continued to move higher. 

The kiwi did fall slip back below 67 US cents after minutes to the last Federal Reserve policy review showed the central bank committee still expected to keep raising interest rates and as a new round of US tariffs on US$16 billion worth of Chinese imports took effect just as officials from the two nations meet in Washington. China firmly opposes the new tariffs and will retaliate, according to a  statement on the Ministry of Commerce website.  

Investors remain jittery about the impact of the China-US trade war on other economies. 

"That's just helping a bit of US dollar buying," said Kelleher. While the kiwi is weaker against the US dollar, Kelleher said he thought the low had been reached last week when it was at 65.5 US cents but "any rally is going to be choppy." 

The kiwi traded at 73.89 yen from 74.01 yen yesterday and  57.70 euro cents from 57.90 cents yesterday. It was at  51.80 British pence from 51.91 pence. The local currency declined to 4.5816 Chinese yuan from 4.5875 yuan.

The trade-weighted index was at 72.26 from 72.36 yesterday.

New Zealand's two-year swap rate was unchanged at 2.01 percent and 10-year swaps were unchanged at 2.84 percent.


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