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NZ dollar sticks to tight range ahead of key events

Monday 24th September 2018

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The New Zealand dollar stuck to a tight range ahead of key events later in the week, including interest rate decisions from the US Federal Reserve and New Zealand's central bank. 

The kiwi traded at 66.69 US cents at 5pm in Wellington, unchanged from 9am and down slightly from 66.84 cents on Friday in New York. The trade-weighted index was last at 72.20 from 72.28 on Friday.

Investors will be watching for the ANZ Business Outlook survey on Wednesday and any further sign that confidence continues to flag will likely weigh on the kiwi.

The major events, however, are Thursday, with the US Federal Open Market Committee widely expected to announce an interest rate increase at the end of its two-day policy meeting early in the day, and the Reserve Bank of New Zealand tipped to keep rates on hold.

"The Fed, in particular, is arguably the big thing this week," said ANZ Bank New Zealand senior macro strategist Phil Borkin. 

ANZ is expecting another two hikes from the Fed this year, including a hike on Thursday, and one the following year, he said.   Given this is quite a bit lower than what the Fed is forecasting in its so-called dot plot, "we think the dot plot will be lowered". However, some people are of the view it could be raised. 

As a result, there is a "bit more uncertainty with a wider range of views" which could create some volatility, said Borkin.

The dot plot provides estimates of what the federal funds rate, or the short-term interest rate controlled by the Fed, should be. Members of the FOMC assign a dot for where they think the funds rate should be at the end of the year for the next few years and in the longer run. The market focuses on the median. 

As for the RBNZ, Borkin expects the Official Cash Rate to stay on hold at 1.75 percent and that rate cuts will stay on the table. While the second-quarter economic growth was stronger than expected "they are a forward-looking bank" and downside risks remain. Also, "obviously their intention has been to get the currency lower and ease financial conditions and they achieved that, so why change the message?" 

The kiwi declined to 75.06 yen from 75.42 yen on Friday, and advanced to 50.99 British pence from 50.40 pence. It was little changed at 91.72 Australian cents and was at 56.77 euro cents from 56.80 cents. It traded at 4.5722 yuan from 4.5766 yuan. 

New Zealand's two-year swap rate rose was unchanged at 2.03 percent while 10-year swaps fell 2 basis points to 2.90 percent.


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