NZ dollar remains below 71 US cents ahead of Fed minutes

Wednesday 12th October 2016

The New Zealand dollar strengthened against its US counterpart but remained below 71 cents ahead of the publication of Federal Reserve minutes overnight from the September meeting in which three of the 10 committee members wanted to raise rates a quarter-point.

The summary of discussions will be closely watched by traders with a rate rise by the American central bank increasingly pencilled in for December, barring a win by Donald Trump in the Presidential election. In contrast, the Reserve Bank of New Zealand's assistant governor John McDermott yesterday reaffirmed the bank's intention to cut interest rates further to try to stimulate inflation, sending the NZ dollar below 71 cents.

At 5pm in Wellington, the kiwi traded at 70.81 cents, compared to 70.53 cents at 8am and 70.69 cents yesterday. The trade-weighted index was at 76.03 compared to 75.86 a day ago.

Matt Simpson, Senior markets analyst at ThinkMarkets in Singapore, said he now expected a "rate cut in November and further dovish tone in that statement with a potential further cut" in the New Year. He added that he expected the Reserve Bank to "struggle to hit their inflation targets, and at current prices the kiwi looks a bit over-valued" with some speculators going short on the currency around three weeks ago.

The local currency pared gains against the British pound, trading at 57.55 pence at 5pm in Wellington, compared to a high of 58.31 pence overnight. It traded at 57.36 pence yesterday.

Simpson said all momentum on the kiwi/sterling exchange was against the pound: "If you look at the two-year trend, look at the five-year trend, any gains are just upswings."

The pound has seen its biggest fall against the US dollar in recent days since June, when Britain narrowly voted to leave the European Union. The kiwi traded at 64.06 euro cents from 63.80 cents yesterday.

The local currency continued its decline against the Australian dollar, dropping to 93.42 cents from 93.49 yesterday. Against the Chinese yuan it rose to 4.7568 from 4.7339 and it gained on the Japanese yen, reaching 73.24 yen from 72.93 yen.

New Zealand's two-year swap rate rose five basis points to 2.07 percent while the ten-year swap rate rose six basis points to 2.66 percent.

BusinessDesk.co.nz

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