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NZ dollar sticks to a tight range ahead of 2Q GDP data

Wednesday 19th September 2018

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The New Zealand dollar traded in a tight range as investors await tomorrow's gross domestic product data for any signs of weakening growth that could pave the way for a rate cut by the central bank.   

The kiwi traded at 65.94 US cents at 5pm versus 65.84 US cents at 8am and 65.90 cent yesterday. The trade-weighted index was at 71.51 from 71.57.

Global risk appetite improved after more moderate tariffs than expected were imposed in the latest round of the US-China trade stoush. But the domestic focus is on the second-quarter economic growth, with economists expecting GDP to have expanded 0.8 percent since the first quarter and the central bank tipping a 0.5 percent expansion.

In its August review, the central bank said that while growth is expected to recover in its central projection, "with surveyed business confidence falling and continued softness in the housing market, GDP growth may not recover as expected." 

If annual growth were to stay below 3 percent during 2019 the official cash rate would need to be reduced by around 100 basis points, it said. The OCR is currently at 1.75 percent. 

Sheldon Slabbert, a trader at CMC Markets, said recent data indicates "there isn't much to be doing cartwheels about". Should second-quarter GDP be weaker than expected, that would weigh on the kiwi, he said. 

Earlier today, dairy product prices fell at the Global Dairy Trade auction as whole milk powder continued its slide amid increased supply. Consumer confidence also fell to a six-year low in the September quarter as New Zealand households fret about the outlook for their own finances and the general economy, according to the latest Westpac McDermott Miller survey.

Also, New Zealand posted its widest annual current account deficit in nine years in the June quarter as foreign-owned firms reaped bigger income from their domestic operations than Kiwi companies did overseas. 

Slabbert said weak data in New Zealand coupled with a stronger US dollar will see the kiwi grind lower and he expects it to fall to 63 or 64 US cents by the end of the year. 

The kiwi declined to 91.04 Australian cents from 91.56 cents yesterday.  

The kiwi fell to 4.5170 Chinese yuan from 4.5207 yuan yesterday and increased to 74.08 yen from 73.79 yen. The kiwi was at 50.14 British pence from 50.08 pence yesterday. The local currency traded at 56.47 euro cents from 56.31 cents yesterday.

New Zealand's two-year swap rate fell 1 basis point to 1.98 percent while 10-year swaps rose 1 basis point to 2.88 percent.

(BusinessDesk)

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