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NZ dollar subsides after early boost from Fed, GDP data

Thursday 21st March 2019

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The New Zealand dollar ended the session little changed after earlier rising on dovish statements from the Federal Reserve and after local GDP figures exceeded expectations.

The kiwi was trading at 69.12 US cents at 5pm in Wellington versus 69.11 US cents at 8am. The trade-weighted index was at 74.58 from 74.57.

Today’s data showed New Zealand’s economy grew 0.6 percent in the December quarter and was 2.3 percent higher than in the same quarter last year.

Two of the big four banks, ASB and Westpac, had been forecasting a 0.3 percent quarterly increase and Bank of New Zealand had expected 0.5 percent growth. ANZ Bank was the lone forecaster of 0.6 percent among the big four.

“This is an example of the market expecting something lower than we got,” says Imre Speizer, market strategist at Westpac.

The outcome makes it less likely the central bank will cut interest rates.

“We’ve got a Reserve Bank meeting next week and were today’s numbers weak, they would’ve expressed that in their commentary,” Speizer says.

Because the data was relatively strong, the Reserve Bank is more likely to say similar things to its statement in February when it said the next move in interest rates could be either up or down, depending on how the data develops.

In the US, the Fed held interest rates steady, as expected, and ruled out any rate hikes this year, pencilling in a single increase in 2020.

The Fed also said it will cease quantitative tightening – unwinding its previous money printing programme, which has a similar impact to raising interest rates – from September.

The Fed still has almost US$4 billion of bonds and other securities on its balance sheet accumulated through its efforts to counter the impact of the global financial crisis in 2008.

The Fed also lowered its inflation and GDP forecasts, which sent longer-term interest rates around the world tumbling.

The yield on the New Zealand government bond maturing in 2029 briefly fell below 2 percent, Speizer says.

The two-year swap was at 1.8032 percent, from 1.8013 on Wednesday. The 10-year swap was at 2.2825 percent from 2.3150 after earlier reaching a record low.

The New Zealand currency also got a boost today from Australian data showing that country’s unemployment rate eased to 4.9 percent in February compared with expectations of 5 percent.

That reflected a fall in the participation rate and the number of jobs added was also less than a third of expectations, Speizer noted.

"The consensus was that it wasn’t as bad as it might have been,” he said.

The New Zealand dollar was trading at 96.70 Australian cents from 96.74, at 52.34 British pence from 52.18, at 60.52 euro cents from 60.37, at 76.37 yen from 76.45 and at 4.6192 Chinese yuan from 4.6246.


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