NZ dollar extends decline through Anzac Day as US bond yields hit 4-year high

Thursday 26th April 2018

The New Zealand dollar extended its decline through the Anzac Day holiday as the greenback flourished with rising yields on US Treasuries boosting returns for the world's reserve currency.

The kiwi fell to 70.66 US cents at 8am in Wellington from 70.94 cents yesterday and 71.14 cents before the local public holiday. The trade-weighted index was at 73.40 from 73.35 at the Tuesday close.

The US dollar index rose 0.5 percent, following the yield on US Treasuries higher, with the 10-year note rising above 3 percent for the first time since early 2014. Investors had been reluctant to support the greenback in recent months despite the prospect of higher interest rates, given the political uncertainty emanating from the White House. However, US President Donald Trump's efforts to quell tensions with North Korea and upcoming trade talks with China have eased some of those concerns.

With the focus returning to interest rate differentials, New Zealand's flat track for interest rates reduces the allure of the kiwi as the US Federal Reserve is set to raise rates two or three times this year. The yield on 10-year US Treasuries was at 3.03 percent, while New Zealand's 10-year government bond last traded at a yield of 2.92 percent.

"The reasonably sharp rise in the USD since the 17th April has coincided with the 20 basis point increase in the 10-year Treasury yield over that same period, suggesting interest rate differentials may have played a part in the USD resurgence," Bank of New Zealand interest rate strategist Nick Smyth said in a note. "The NZD has fallen around 4 percent since April 17th, making it the worst performing currency in the G10 over that period."

With no local data of note, investors will await the upcoming European Central Bank policy review to gauge its take on the regional economy's health. Analysts don't expect the ECB will announce plans to start withdrawing quantitative easing until June or July.

The kiwi was almost unchanged at 58.05 euro cents from 58.03 cents yesterday and traded at 50.74 British pence from 50.75 pence.

The local currency fell to 93.40 Australian cents from 93.60 cents yesterday and declined to 4.4683 Chinese yuan from 4.4706 yuan. It traded at 77.26 yen from 77.30 yen yesterday.

(BusinessDesk)

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