NZ dollar little changed as NZ First drags out election decision

Wednesday 11th October 2017

The New Zealand dollar was little changed, trading in a narrow range after the NZ First Party delayed its decision on who will lead the next government, while the prospect of rising US interest rates and an improving US economy lift the greenback.

The kiwi traded at 70.75 US cents as at 5pm in Wellington from 70.69 cents at 8am and 70.68 cents yesterday. The trade-weighted index was at 74.59 from 74.64 yesterday.

Political negotiations have created a level of uncertainty over the formation of the next government, which was heightened by the final tally putting the competing National and Labour-Green bloc on a more even footing in their talks with NZ First. Leader Winston Peters originally indicated a decision would be coming tomorrow when the writs are returned to the governor-general, but yesterday he said an announcement would probably be a little later.

"It's still 'which way will Winston swing' - that's what the market's waiting to price in," said Imre Speizer, senior market strategist at Westpac Banking Corp. "If he announces a swing to the right, you'll probably see buying in the kiwi; if it's left, and this is less certain, they may sell the kiwi."

The local election has added to pressure on the kiwi, although its decline in recent months has been underpinned by a strengthening US dollar, underpinned by upbeat economic data and the prospect of the Federal Reserve raising interest rates, he said.

"The big story is the resurgence of the US dollar," Speizer said.

The kiwi largely ignored local data showing a fall in guest nights in August as domestic tourism slowed down ahead of the general election in September.

New Zealand's two-year swap rate slipped 1 basis points to 2.19 percent, and 10-year swaps declined 2 basis points to 3.25 percent.

Speizer said the short-end of the interest rate curve had "hardly budged" with a 2 basis point range over the last two weeks, whereas the long-end of the curve was moving in lockstep with US Treasuries.

The local currency traded near a 17-month low at 59.91 euro cents from 60.05 cents yesterday as a run of strong German data supports the prospect of the European Central Bank unwinding some of its ultra-loose monetary policy settings. The kiwi was little changed at 53.60 British pence from 53.72 pence yesterday and traded at 79.56 yen from 79.64 yen.

The kiwi edged up to 90.90 Australian cents from 90.84 cents yesterday and increased to 4.6677 Chinese yuan from 4.6633 yuan.

(BusinessDesk)

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