NZ dollar still firm against USD but gains capped by waning risk appetite

Monday 19th November 2018

The New Zealand dollar held its gains against the greenback after the US Federal Reserve officials were cautious about the global growth outlook but jitters about the US-China trade dispute kept it capped.

The kiwi traded at 68.52 US cents at 5pm in Wellington versus 68.53 US cents at 8am and from 68.76 cents on Friday in New York. The trade-weighted index was at 74.67 from 74.83 last week.

Richard Clarida, the Fed’s newly appointed vice chair, cautioned about a slowdown in global growth in an interview with CNBC while Federal Reserve Bank of Dallas President Robert Kaplan told Fox Business he is seeing a growth slowdown in Europe and China. Those comments weighed on the US dollar as investors saw them as signaling fewer rate cuts on the horizon.

The kiwi, however, is keeping to a very tight range as ongoing worries about the US-China trade dispute weigh on risk appetite, said Mark Johnson, a private client manager at OMF.

Weekend comments by US Vice President Mike Pence fueled the concerns. Pence - who was attending the Asia- Pacific Economic Cooperation summit in Papua New Guinea - said that there would be no end to U.S. tariffs on $250 billion of Chinese goods until China changed its ways, according to Reuters. Also, for the first time in its nearly three-decade history, officials of the 21-member Pacific Rim group ended two days of meetings in Port Moresby without issuing a joint communique.

"You all know who the two big giants in the room were, so what can I say, " PNG Prime Minister Peter O'Neill said, Dow Jones Newswires reported.

The kiwi, however, is also being supported as investors pare back on so-called 'short' kiwi dollar positions, which had been running at record levels for the past several months. When positioning is short, it means traders are selling the kiwi in the expectation it will fall and can be bought back at a lower price.

Data from the Commodity Futures Trading Commission showed that short positioning is now down close to US$1 billion over the past two weeks and "that justifies why the kiwi is pushing up around these levels," said Johnson.

Looking ahead, Johnson said the greenback may gain if the risk appetite remains muted, but also noted this week marks the US Thanksgiving holiday as well as Black Friday "which will make for a very quiet week."

The kiwi traded at 93.68 Australian cents from 93.78 cents last week and fell to 77.21 yen from 77.52 yen. It declined to 4.7553 Chinese yuan from 4.7662 yuan last week.

The local currency traded at 53.36 British pence from 53.50 pence last week and was at 60.04 euro cents from 60.16 cents.

New Zealand's two-year swap rate was down two basis points at 2.15 percent; the 10-year swaps were down two basis points at 2.99 percent.

(BusinessDesk)

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