Monday 20th August 2018
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The New Zealand dollar dipped as investors latched on to an ANZ Bank New Zealand report highlighting the growing chance of an interest rate cut.
The kiwi traded at 66.22 US cents at 5pm in Wellington versus 66.32 cents at 8am and 66.36 cents on Friday in New York. The trade-weighted index declined to 71.79 from 71.97 last week.
Investors had thought the local currency would benefit as talks between US and Chinese officials this week were seen as calming heightened trade tensions between the world's two biggest economies. However, any upside lift was capped when ANZ published a note saying "we now see the OCR on hold for the foreseeable future. In terms of the risks, the next move now looks more likely to be a cut than a hike."
The kiwi had been expected to "rally on the day given the thawing of relations, or hopeful thawing of relations between the US and China in anticipation of Wednesday's trade delegation to Washington but that has not been the case," said Ross Weston, a senior trader at Kiwibank. "ANZ came out and announced they are not forecasting any hikes at all and that's what seen the kiwi trade softer throughout the day."
Earlier this month, the Reserve Bank kept the official cash rate at a record low 1.75 percent and pushed out the timing for the first rate hike on worries about economic growth. Governor Adrian Orr reiterated that “the direction of our next OCR move could be up or down." While several economists have said the risk of a cut is higher, their central case is still for an eventual rate hike. ANZ Bank, however, said "we are no longer forecasting that the next move in the OCR will be up."
Looking ahead markets will be watching for the second quarter retail data Wednesday to see if deteriorating business and consumer confidence has translated to retail spending.
The main focus will remain on China-US trade relations and any positive news will support New Zealand's currency as "the kiwi dollar is hitched to the Chinese growth engine," said Weston.
Otherwise, central bank minutes from the Reserve Bank of Australia and the US Federal Reserve will be in view.
The New Zealand dollar traded at 90.60 Australian cents from 90.61 cents last week and fell to 4.5344 Chinese yuan from 4.5575 yuan. It traded at 59.95 euro cents from 59.96 cents on Friday and was at 51.95 British pence from 52.10 pence. The local currency traded at 73.26 yen from 73.27 yen last week.
New Zealand's two-year swap rate was unchanged at 2.03 percent while the 10-year swap rate eased 1 basis point to 2.86 percent.
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