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NZ dollar falls as weak jobs data stokes view interest rates won't rise

Wednesday 2nd August 2017

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The New Zealand dollar fell after weaker-than-expected employment in the second quarter added to the view the central bank will keep interest rates firmly on hold for longer. 

The kiwi was trading at 74.28 US cents at 5pm versus 74.70 US cents at 8am in Wellington from 75.04 cents late yesterday while the trade-weighted index was at 78.16 from 78.72.

The kiwi took a tumble after Statistics New Zealand released figures showing employment shrank 0.2 percent in the three months ended June 30. Economists polled by Reuters had been expecting growth of 0.7 percent, extending the run of gains into a seventh quarter. The participation rate dropped to 70 percent from 70.6 percent and missed forecasts for a rate of 70.7 percent. 

ASB Bank chief economist Nick Tuffley said the data reinforces the idea that the RBNZ will be in no rush to raise interest rates anytime soon and pushed out when he expects the next rate increase. "We now expect the RBNZ will leave the official cash rate on hold until February 2019, previously November 2018," he said. The central bank has indicated it plans to keep interest rates on hold at 1.75 percent before lifting them in 2019. 

"It was all on the data. and since that point the kiwi has been on the back foot. We've also seen quite a bit of selling against the Aussie," said Martin Rudings, senior dealer foreign exchange at OMF in Wellington. 

The kiwi traded at 93.33 Australian cents versus 93.48 Australia cents late yesterday and Rudings said it could test below 93 Australian cents later in the global trading day. 

The jobs data means the central bank "is more likely to be on their hands for a very long time," he said, adding they could drop any hint of a tightening bias. 

 "If they want to make a difference on the currency they will come out and say we are basically neutral. The market will adjust the interest rates and pull the currency down," he said.

In the short term, however, it may not fall much further against the US dollar in particular as the greenback remains capped by political turmoil in Washington and lacklustre U.S. economic data. The focus will now shift to US jobs data at the end of the week. 

The kiwi traded at 62.80 euro cents from 63.43 cents and slipped to 82.34 yen from 82.69 yen. It declined to 56.23 British pence from 56.77 pence and traded at 4.9957 yuan from 5.0409 yuan.

New Zealand's two-year swap rate fell 1 basis point to 2.20 percent while the 10-year swaps fell 2 basis point to 3.28 percent.


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