NZ dollar gains from 4-week low spurred by 'dovish' RBNZ as US stocks drop, volatility increases

Friday 9th February 2018

The New Zealand dollar gained from a four-week low reached yesterday in the wake of a Reserve Bank statement seen by some as dovish and traders expect more volatility as US stocks extend their decline and bond yields rose.

The kiwi rose to 72.33 US cents as at 8am in Wellington from 71.90 cents late yesterday. The trade-weighted index advanced to 74.51 from 74.01.

The Standard & Poor's 500 Index fell 1.3 percent, extending its slide of the past two weeks while the Chicago Board Options Exchange Volatility Index (VIX) climbed above 30, having reached its highest levels in more than two years this week. Meanwhile, crude oil led declines in commodity prices. The Bank of England surprised investors by signalling it may raise interest rates sooner and further than previously flagged, in contrast to New Zealand's central bank projecting no hikes until 2020.

"With volatility making a broad comeback, one should be prepared for broader ranges going forward," said Sharon Zollner, chief economist at ANZ Bank New Zealand, in a note. "A re-escalation in market jitteriness overnight has so far had little impact on the kiwi, which is still hovering around its post-RBNZ levels. However, with increased financial market volatility here to stay and the RBNZ reinforcing that it is in no hurry to tighten, we see the bias for support levels as likely to continue to be tested."

Zollner said the kiwi would find support if it fell to about 71.40 US cents and resistance if it rose to 73.50 cents.

The kiwi traded at 51.88 British pence from 51.77 pence yesterday. Bank of England policymakers said monetary policy "would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report," according to minutes of the latest meeting.

The kiwi rose to 92.58 Australian cents from 91.99 cents yesterday. The local currency increased to 4.5735 yuan from 4.5308 yuan and gained to 78.83 yen from 78.62 yen. It rose to 58.95 euro cents from 58.57 cents.

(BusinessDesk)

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