NZ dollar slips against greenback, rallies against British pound and euro

Tuesday 13th November 2018

The New Zealand dollar slipped against the greenback, while it rallied against the euro and the British pound amid concern about Brexit negotiations and Italy’s budget plans.

Weighing on the global mood was a drop in US equities, spurred by declines in shares of Apple and other tech stocks. While Wall Street was open on Monday, the US bond market and government offices were closed for the Veterans Day Holiday.

The kiwi traded at 67.24 US cents at 8.45am in Wellington from 67.44 US cents late Monday. The trade-weighted index was at 73.85 from 73.83.

"The New Zealand dollar has held up very well in spite of the US dollar’s renewed strength and further falls in equity markets," Bank of New Zealand interest rate strategist Nick Smyth in a note.

"The resilience of the New Zealand dollar is probably explained by further unwinding of NZD short positions as the market continues to recalibrate its Reserve Bank expectations in the wake of the exceptionally strong employment report,” according to Smyth.

A drop in New Zealand’s unemployment rate to the lowest level in a decade bolstered expectations the Reserve Bank’s next move will be to hike, rather than cut, interest rates.

When it comes the outlook for US borrowing costs, investors will scrutinise US consumer price data due on Wednesday as well as comments from Federal Reserve Chair Jerome Powell, who is set to speak the same day, for fresh pointers. The Fed is widely expected to hike its target interest rate next month.

“The recent slump in crude oil and gasoline prices means that headline CPI inflation could fall well below 2 percent for most of next year,” Paul Ashworth, chief US economist at Capital Economics, said in a note.

“But, given that lower prices would also provide a small boost to real GDP growth, the temporary inflation undershoot won’t stop the Fed from continuing to raise interest rates,” Ashworth added.

Also on tap for Wednesday are key economic data from China including reports on industrial production and retail sales.

The kiwi was at 4.6818 Chinese yuan from 4.6931 yuan.

The New Zealand dollar rallied against the British pound and the euro amid intensifying concern about Brexit talks. The kiwi traded at 52.36 British pence from 51.93 pence Monday, and was at 59.83 euro cents from 59.38.

“Markets become more agitated about the risks of a No-deal or a Corbyn-led Labour government,” BNZ’s Smyth said.

Tension between the European Union and Italy over the latter's budget, which might breach EU fiscal rules, added to pressure on the euro.

The kiwi traded at 93.55 Australian cents from 93.27 cents Monday, and at 76.55 yen from 76.87 yen.

(BusinessDesk)

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