NZ dollar rangebound after Fed signals unwinding, election still in focus

Thursday 21st September 2017

The New Zealand dollar gave up earlier gains after the US Federal Reserve announced a plan to start shrinking its balance sheet and signalled one more rate hike later this year, remaining rangebound ahead of Saturday's general election.

The kiwi traded at 73.21 US cents as at 5pm versus 73.50 US cents as at 8am and from 73.12 cents before yesterday's poll showing the incumbent National Party in the lead. The trade-weighted index was at 76.53 from 75.97 yesterday.

The US dollar gained ground during the Asian trading session after the Fed said it would begin in October to dial back its US$4.5 trillion stockpile of assets and also signalled it still expects one more interest rate hike by the end of the year.

"It's pretty hard to be bullish kiwi. If you think the Reserve Bank's on hold and our rates are at 1.75 percent and by the middle of next year, or the end of next year the Fed rate is going to be 2.25 percent then where are you going to be parking your money?", said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

Kelleher said investors will be watching for the latest Newshub-Reid Research poll due at 6pm. However, he noted polling has been volatile and "I wouldn't get too excited about the weekend yet as anything could happen." Yesterday's 1News Colmar Brunton poll yesterday showed the National Party rose six points to 46 percent compared to last week's poll while Labour fell seven points to 37 percent.

The kiwi remained firm against the Australian dollar, trading at 91.54 Australian cents versus 91.10 cents yesterday on the back of some weakness in commodity prices, in particular iron ore, said Kelleher. "That's holding the kiwi-Aussie cross up a bit," he said. The domestic second-quarter gross domestic product data didn't move the market after the 0.8 percent on quarter growth was in line with expectations.

The kiwi was at 82.31 yen from 81.43 yen. The Bank of Japan left its monetary policy unchanged Thursday, signalling the central bank's confidence it will meet its 2 percent inflation target. It was at 4.8238 Chinese yuan from 4.7978 yuan. It gained to 54.29 British pence from 54.03 pence yesterday and advanced to 61.61 euro cents from 60.84 cents.

The two-year swap rate was unchanged at 2.24 percent while 10-year swaps rose 2 basis points to 3.29 percent.

(BusinessDesk)

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