NZ dollar may get some respite as China bolsters economy

Monday 8th October 2018

The New Zealand dollar fell after US jobs data on Friday, but may get some respite after China’s central bank announced a steep cut in the level of cash its banks must hold as reserves.

The kiwi traded at 64.41 US cents at 8am in Wellington, unchanged from the New York close and down from 64.65 cents in Asia last week. The trade-weighted index dropped to 70.53 from 71.11.

US non-farm payrolls, which showed a 134,000 increase in jobs in September, undershot expectations. But there were upward revisions to the prior months and the unemployment rate fell to 3.7 percent, the lowest rate in almost 50 years. Hourly earnings rose an annual 2.8 percent, meeting expectations.

Wage growth has supported the Federal Reserve's bias to raise interest rates and the greenback will continue to benefit.

"There is little doubt that officials have turned more hawkish recently," Philip Borkin, senior macro strategist for ANZ Bank New Zealand, said of the Fed.

On Sunday, the People's Bank of China said reserve requirement ratios - currently 15.5 percent for large commercial lenders and 13.5 percent for smaller banks - will be cut by 100 basis points effective Oct. 15. That matches a similar move in April and was the fourth this year as Beijing seeks to support the economy against the backdrop of the escalating trade war with the US. Any support for the Chinese economy bolsters the kiwi as China is New Zealand's largest trading partner.

While China's move might also help support risk, "any NZD bounces are something we suspect will be sold into," Borkin said. The kiwi has support at 63.50 US cents and faces resistance at 64.80 cents, he said.

The kiwi rose to 4.4237 Chinese yuan from 4.4182 yuan on Friday in New York. It traded at 91.21 Australian cents from 91.16 cents last week and was at 73.27 yen from 73.14 yen.

The local currency was almost unchanged at 49.05 British pence from 49.06 pence last week and traded at 55.86 euro cents from 55.84 cents.

(BusinessDesk)

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