NZ dollar gains as markets fret about political pressure on the Fed

Monday 23rd July 2018

The New Zealand dollar continued to push higher against the US dollar as President Donald Trump's criticism of the high greenback and rising interest rates raised concerns about potential political pressure being exerted on the Federal Reserve.

The kiwi traded at 68.14 US cents as at 5pm in Wellington from 67.91 cents at 8am and 68.07 cents on Friday in New York. The trade-weighted index was at 73.10 from 73.08.

The US dollar was hurt after Trump complained about the greenback's strength and criticised the Fed's tightening policy in an interview and then reiterated those comments on twitter.

"The market is a little nervous about the Fed being put under a bit more political pressure," said ANZ Bank New Zealand senior macro strategist Phil Borkin. As a result, the kiwi is benefiting from a "continuation of US dollar weakness," he said.

The US dollar has gained in recent months on the back of improving economic data and rising US interest rates, however, Borkin said the greenback is "starting to look like a lot of the good news is priced in and for it to continue to strengthen from here might be a bit of a struggle," which should keep the kiwi from falling much further.

The local currency slipped against the yen as the market weighed up reports that the Bank of Japan could potentially tweak its ultra-loose monetary policy and traded at 75.60 yen from 75.82 yen on Friday. According to Reuters, the BOJ is holding preliminary discussions on making changes to interest rate targets and stock-buying techniques, with a focus on ways to make the massive stimulus program more sustainable.

The kiwi traded at 4.6053 Chinese yuan from 4.6055 yuan last week and at 91.77 Australian cents from 91.74 cents. It traded at 58.08 euro cents from 58.04 cents and at 51.84 British pence from 51.79 pence.

With little data on the immediate horizon, Borkin said markets will be watching for more detail from the BOJ and any further comment from Trump.

New Zealand's two-year swap rate was unchanged at 2.13 percent and 10-year swaps rose 2 basis point to 3 percent.

(BusinessDesk)

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