NZ dollar TWI heads for 1.4% weekly gain as local allure attracts investors

Friday 1st July 2016

The New Zealand dollar is heading for a 1.4 percent weekly gain on a trade-weighted basis as the country's distance from Europe and the UK and its attractive yield continue to reel in investors chasing better returns.

The trade-weighted index rose to 76.38 at 5pm in Wellington from 75.30 on Friday last week and was up from 75.80 yesterday. Among the cross rate gains was a 2.9 percent jump against the British pound to 53.60 pence from 52.11 pence a week ago, up from 52.88 pence yesterday.

The Reserve Bank's 2.25 percent official cash rate is a stand-out in a world where many central banks are keeping borrowing costs near zero and may provide further stimulus in response to the UK's vote to quit the European Union. Bank of England governor Mark Carney yesterday said he'll probably need to provide more stimulus to the UK economy. The yield on New Zealand's 10-year government bond was recently at 2.35 percent, near a record low, though still more than the 1.45 percent yield on US 10-year Treasuries, -0.11 percent yield on EU bonds and -0.25 percent yield for Japanese notes.

"There's ongoing demand for NZ Inc based on the fact we're as far as you can get from the UK and Europe and have better yields as well," said Tim Kelleher, head of institutional FX sales NZ at ASB Bank Institutional in Auckland. Still, "the kiwi looks like this bounce is corrective on the charts, so I think we've got a bout of 'risk-off' coming."

The kiwi climbed to 71.47 US cents at 5pm in Wellington from 70.86 cents yesterday and is heading for a 0.2 percent increase against the greenback. US markets might be quieter than usual with the Independence Day holiday falling on Monday.

ASB's Kelleher said the kiwi looks like a 'sell' around 71.50/72 US cents.

The local currency climbed to 95.70 Australian cents from 95.25 cents yesterday ahead of the Federal election tomorrow. Polling shows the vote will be close, and ASB's Kelleher said he was surprised at how little attention the election has been attracting.

The kiwi gained to 4.7542 Chinese yuan from 4.7074 yuan yesterday after Chinese manufacturing data showed a slowing of activity in line with expectations and a gauge of services activity picked up.

The local currency increased to 73.53 yen from 72.79 yen yesterday and advanced to 64.36 euro cents from 63.81 cents.

New Zealand's two-year swap rate dropped 6 basis points to 2.16 percent and 10-year swaps fell 7 basis points to 2.58 percent.

BusinessDesk.co.nz

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