NZ dollar gains; US payrolls likely to set short-term direction

Friday 2nd September 2016

The New Zealand dollar gained after weaker-than-expected US manufacturing data although US non-farm payrolls tonight is expected to set the kiwi's direction from here, at least in the short term.

The kiwi rose to 72.88 US cents as at 5pm in Wellington from 72.51 cents late yesterday. The trade-weighted index gained to 77.63 from 77.43.

Market consensus is that the US economy added 180,000 jobs last month, down from 255,000 in July but still a sign of a relatively robust labour market, a key consideration for the Federal Reserve in deciding whether the world's biggest economy is sturdy enough to sustain higher interest rates. Federal Reserve chairwoman Janet Yellen and vice chairman Stanley Fischer talked up the prospects of interest rate hikes while saying it was dependent on a flow of strong economic indicators.

"It's all going to be about the payrolls tonight - a lottery as always," said Imre Speizer, senior market strategist at Westpac Banking Corp. "Every trader and their dog will be glued to that number and if it is more or less then they will buy or sell the US dollar."

Speizer said a meaningful variation for the non-farm payrolls number would be "40k either way". A number as high as 225,000 "would have tongues wagging that the Fed will go in September" and the kiwi may fall below 72 cents. If it is a very weak number, there's a risk that the kiwi could soar to 74 US cents or 75 US cents in the next couple of weeks.

The kiwi gained earlier following a weaker-than-expected ISM manufacturing report.

Traders are pricing in just a 12 percent chance that the Reserve Bank will cut interest rates at its next meeting on Sept. 22 but the odds of a 25 basis point cut by the monetary policy statement on Nov. 10 are currently around 77 percent.

The New Zealand dollar rose to 96.36 Australian cents from 96.13 cents late yesterday. It increased to 75.27 yen from 74.89 yen and gained to 4.8668 yuan from 4.8460 yuan. It was little changed at 65.03 euro cents from 65.04 cents and fell to 54.84 British pence from 55.16 pence after the UK Markit PMI manufacturing index for August printed at 53.3 against expectations of 49.

New Zealand's two-year swap rate was unchanged at 1.99 percent and 10-year swaps rose 1 basis point to 2.40 percent.

BusinessDesk.co.nz

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