NZ dollar headed for 1.2% weekly gain as shine comes off USD

Friday 12th October 2018

The New Zealand dollar is headed for a 1.2 percent weekly gain after the greenback fell on declining U.S. yields and further losses on Wall Street.

The kiwi traded at 65.19 US cents at 5pm in Wellington from 65.18 US cents at 8am in Wellington and 64.75 cents yesterday. It traded at 64.41 US cents last Friday in New York. The trade-weighted index advanced to 71.16 from 70.95.

It benefited from US dollar weakness after equity markets took a tumble and the yield on US 10-year Treasuries fell to around 3.15 percent, down from 3.26 percent earlier this week. Overnight data that showed US core inflation was steady at an annual pace of 2.2 percent also weighed on the greenback as it pointed to further gradual, rather than aggressive, rate rises.

But the kiwi's gains may be short-lived.

Martin Rudings, senior dealer foreign exchange at OMF, said the US Federal Reserve is still lifting rates so "the return of US dollar strength is just around the corner." He said the kiwi was likely to run into strong selling around 65.40 US cents.

Next week's domestic inflation data will be closely watched. Even if the number is higher than the central bank is expecting it is unlikely to change things as any lift will be largely driven by fuel. The Reserve Bank has previously said it will look through that volatility.

The consumers price index probably rose 0.7 percent in the three months ended Sept. 30, for an annual increase of 1.7 percent, according to the median in a poll of 14 economists surveyed by Bloomberg. The central bank expects 0.4 percent, and an annual rise of 1.4 percent.

Even if the inflation number is strong "the market would be foolish to take that as a massive sign to buy kiwi as the RBNZ is going to look through fuel," Rudings said.

The kiwi was at 91.44 Australian cents from 91.51 cents yesterday. It traded at 4.4976 Chinese yuan from 4.4872 yuan and rose to 73.25 yen from 72.59 yen. The local currency increased to 49.25 British pence from 48.94 pence yesterday and rose to 56.19 euro cents from 55.97 cents.

New Zealand's two-year rate was unchanged at 2.01 percent while 10-year swaps rose 3 basis points to 2.92 percent.

(BusinessDesk)

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