NZ dollar drops as US bond yields rise on stronger than expected data

Thursday 4th October 2018

The New Zealand dollar fell as better than expected US data drove yields on US bonds to a seven-year high, making the greenback a more attractive investment option.

The kiwi dropped to 65.31 US cents as at 8am in Wellington from 65.73 cents yesterday. The trade-weighted index declined to 71.37 from 71.62.

The yield on 10-year US Treasuries climbed 10 basis points to 3.15 percent after the ISM non-manufacturing survey beat expectations in hitting a 21-year high. A strong ADP private payrolls report also raised expectations for non-farm payrolls figures at the end of the week. Higher US bond yields make the greenback more attractive to investors, and US 10-year Treasuries are now 54 basis points higher than their New Zealand equivalent, the widest spread in at least 20 years.

"The NZD and AUD are the weakest currencies across the G10 over the past 24 hours, both down almost 1 percent," Bank of New Zealand interest rate strategist Nick Smyth said in a note. "The increase in US-NZ interest rate differentials likely played a part in the move."

The kiwi traded at 56.69 euro cents from 56.77 cents yesterday as fears over Italy's government debt subsided. Prime Minister Giuseppe Conte said the coalition will target smaller budget deficits in coming years.

The local currency slipped to 50.32 British pence from 50.59 pence yesterday after UK Prime Minister Theresa May signalled an end to austere spending policies in her speech to the Conservative Party conference and defended her Brexit plan as "standing up for Britain".

No local data is scheduled for today. Reserve Bank head of prudential supervision Toby Fiennes will speak on bank disclosure.

The kiwi traded at 91.70 Australian cents from 91.62 cents yesterday and dropped to 4.4841 Chinese yuan from 4.5150 yuan. It traded at 74.64 yen from 744.73 yen yesterday.

(BusinessDesk)

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