NZ dollar gains on reports Trump has tapped Powell as new Fed chair

Thursday 2nd November 2017

The New Zealand dollar gained on reports that US President Donald Trump has selected Jerome Powell as the next chair of the US Federal Reserve although traders say the bounce may be short-lived.

The kiwi rose to 69.22 US cents as at 5pm from 68.83 US cents as at 8am in Wellington and 69.08 cents late yesterday. The trade-weighted index was at 73.22 from 73.29.

The US dollar eased in Asia after news reports the White House plans to nominate current Fed Governor Jerome Powell as the next chair when Janet Yellen’s term expires in February. A formal announcement is expected later in the global trading day. According to Bloomberg, in Powell, he’ll select a former private-equity executive who favours continuing gradual interest-rate increases and sympathises with White House calls to ease financial regulations.

"That's being interpreted in this part of the world as being a little bit dovish for markets and I suppose he was the dovish of the two, but I don't think that detracts from where the US economy is so it wouldn't surprise me if we have a bit of a retracement of this USD weakness going into London and New York," said Martin Rudings, senior dealer foreign exchange at OMF in Wellington.

Investors will be watching for any tax announcements from Trump but the big number for the week will be the US payrolls data, said Rudings. On Friday, the Labor Department’s nonfarm payrolls report is expected to show growth of 303,000 jobs in October, compared to a drop of 40,000 the month before. Total non-farm employment is expected to have increased by 312,000, according to economists polled by Reuters.

A strong lift will be US dollar positive and "I am still a US dollar bull going into the end of the year. The Fed has indicated the December rate hike is on, it's now 87 percent priced in," Rudings said. Overall, the uncertainty still surrounding the New Zealand government and the likelihood of a stronger US dollar will keep the kiwi dollar capped, he said.

The Bank of England's rate decision and statement later today will also be closely watched. Given that the BOE is widely expected to lift rates, any guidance on what they do next will be key for markets.

The kiwi was at 52.10 British pence from 52.03 pence and at 59.38 euro cents, unchanged from yesterday. It traded at 89.59 Australian cents from 90.10 cents and at 4.5664 yuan from 4.5750 yuan. It was at 78.80 yen from 78.64 yen.

New Zealand's two-year swap rate fell 1 basis points to 2.15 percent and 10-year swaps fell 3 basis points to 3.14 percent.

(BusinessDesk)

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