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NZ dollar steady, volatility possible as ECB forum continues

Wednesday 28th June 2017

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The New Zealand dollar spent the day treading water after its overnight tumble when European Central Bank president Mario Draghi hinted the ECB might start winding down its stimulus. The local currency could see further volatility overnight as different central bankers speak at the three-day European Central Bank Forum on Central Banking.

The kiwi traded at 64.11 euro cents at 5pm versus 64.10 euro cents at 8am in Wellington and 65.25 cents late yesterday. It traded at 72.76 US cents from 72.72 US cents at 8am and from 73.00 cents late yesterday.

"It's been a very quiet day after a few fireworks overnight," said ANZ senior economist Phil Borkin. However, with more speeches to come overnight, including a panel discussion with Bank of England governor Mark Carney, the ECB's Draghi, Bank of Japan governor Haruhiko Kuroda and Bank of Canada governor Stephen Poloz, there could be further volatility, he said.

The market will be interested to see "if this rhetoric and growing chorus about removing some of this liquidity" continues, said Borkin. "If that really is going to happen then risk currencies like the New Zealand dollar could face a few more headwinds," he said. 

BNZ senior market strategist Jason Wong noted New Zealand and Australia's central bank's stand out for their neutral policy tone at a time when the language of other central banks has moved towards removal of policy accommodation.

"If the RBNZ holds the neutral policy line – something we expect through the rest of this year – against the shifting tide of other central banks, then the NZ-global rates differential plays to a softer NZD," said Wong. 

On the domestic front, Borkin said investors will be watching for ANZ's business outlook survey tomorrow and building consents data later in the week. 

The kiwi dropped to 56.77 British pence from 57.35 pence late yesterday and the trade-weighted index fell to 78.21 from 78.70.

The local currency slipped to 95.72 Australian cents from 96.07 cents late yesterday and traded at 81.59 yen from 81.63 yen. The kiwi fell to 4.9487 yuan from 4.9956 yuan.

New Zealand's two-year swap rate rose 3 basis points to 2.24 percent while the 10-year swap rate rose 8 basis points to 3.20 percent.


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