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NZ dollar heads for 2% decline as resurgent US yields stoke greenback demand

Friday 27th April 2018

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The New Zealand dollar is heading for a 2 percent drop against the greenback this week as rising yields on US bonds and the prospect for US interest rates to go even higher spurs demand for the world's reserve currency. 


The kiwi fell to 70.65 US cents as at 5pm in Wellington from 72.07 cents on Friday in New York last week, largely unchanged from 70.56 cents yesterday. The trade-weighted index is heading for a weekly decline of 1.3 percent to 73.44, recovering a little from 73.28 yesterday. 


Investors are awaiting first-quarter US gross domestic product figures overnight, which are expected to show the world's biggest economy grew at an annualised rate of 2 percent in the first three months of the year. A strong reading will continue to support the outlook for the US economy and maintain the prospect of more interest rate hikes by the Federal Reserve, which has underpinned rising US bond yields, with the 10-year Treasury climbing above 3 percent this week for the first time in four years. That reminded investors of the favourable US interest rate differential and saw investors back the greenback, having previously spurned the currency over uncertainties linked with the White House. 


"It's nice to see the engine go back to fundamentals like the US 10-year, GDP and the like as opposed to egos, and personalities and politics pushing markets around," said John Chisholm, head of options at HiFX in Auckland. "This is the first day where there's a little respite (for the kiwi) ahead of the US GDP data." 


Local data today showed New Zealand posted its first merchandise trade deficit for a March month in a decade due to a jump in fuel imports, and a separate survey reported a decline in consumer confidence.


Reserve Bank figures showed March reported the biggest value of high-LVR mortgage lending since August 2016 at $443 million and the highest monthly lending to first-home buyers at $911 million since the central bank started collecting the data. The RBNZ eased up on the loan-to-value speed limits this year. 


New Zealand's two-year swap rate fell 1 basis point to 2.28 percent, unchanged from a week earlier, and 10-year swaps fell 6 basis points to 3.24 percent, still up 4 basis points on the week. 


The local currency rose to 58.32 euro cents from 57.69 cents yesterday after European Central Bank president Mario Draghi acknowledged some moderation in the eurozone's growth, and edged up to 50.71 British pence from 50.61 pence yesterday. The kiwi traded at 77.12 yen from 77.15 yen yesterday and increased to 4.4757 Chinese yuan from 4.4625 yuan. It rose to 93.53 Australian cents from 93.19 cents yesterday. 



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