NZ dollar gains after Australian business conditions lift, RBNZ looms

Tuesday 8th September 2015

The New Zealand dollar rose ahead of the Reserve Bank's statement on Thursday and after an Australian survey showed improving business conditions even while business confidence fell, giving traders more confidence economic growth across the Tasman won't collapse.

The kiwi rose to 62.76 US cents as at 5pm in Wellington, from 62.67 cents late yesterday. The trade-weighted index was little changed at 68.49 from 68.54 yesterday. The New Zealand dollar slipped to 90.21 Australian cents from 90.54 cents yesterday.

National Australia Bank's monthly survey showed business conditions rose 5 points to +11 in August, as trading and profitability grew, even while business confidence fell to +1, the lowest in two years. The survey stoked confidence the Australian economy can withstand the headwinds of a weaker mining sector and lower terms of trade, although it also indicated concerns about the strength of demand from China, Australia's biggest market. China today reported a trade surplus of 368 billion yuan, or US$57.8 billion, in August as imports dropped 14.3 percent, outpacing a 6.1 percent decline in exports.

"Overall the market greeted the confidence survey favourably," said Michael Johnston, senior trader at HiFX. Investors are "sitting on the sideline waiting for the RBNZ. It is fully priced in that they are going to cut interest rates by 25 basis points, so there's a good chance of a rally" in the kiwi after the statement.

Still, Johnston said the longer-term trend in the kiwi is still down and any rally would be an opportunity for importers to sell. HiFX sees the kiwi dollar falling below 55 US cents in the next six to 12 months on a slower pace of growth in the domestic economy, the risk that the El Nino weather pattern reduces farm output next summer, and a backdrop of the US gradually raising interest rates.

Traders have put 78 percent odds of Reserve Bank governor Graeme Wheeler cutting the official cash rate a quarter point to 2.75 percent on Thursday, as economic growth slows following a slump in dairy prices, the nation’s largest export commodity.

The kiwi fell to 55.95 euro cents from 56.24 cents yesterday and fell to 40.95 British pence from 41.25 pence yesterday. It declined to 74.71 yen from 74.84 yen, and rose to 3.9973 yuan from 3.9905 yuan.

The two-year swap rate was unchanged at 2.80 percent and 10-year swaps fell 1 basis point to 3.60 percent.

BusinessDesk.co.nz

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