NZ dollar little changed as traders hold out hope Trump will unleash US stimulus

Tuesday 28th February 2017

The New Zealand dollar was little changed ahead of a speech by US President Donald Trump that some traders expect will set out his spending plans and the magnitude of his policies while there's little domestic news likely to move the kiwi.

The local currency traded at 71.82 US cents as at 5pm in Wellington from 71.94 cents late yesterday. The trade-weighted index slipped to 78.11 from 78.24.

US Treasury Secretary Steven Mnuchin said last weekend that Trump will use a speech on Tuesday in the US to outline tax cuts for companies and the middle class, a move that would be seen as a boost to the US economy. Reuters reported, citing a White House official, that Trump will seek a US$54 billion increase in military spending, and there are expectations he will flag infrastructure spending as well.

"If it disappoints the market the kiwi goes up. If he gives the market what it wants, the US dollar gains," said Imre Speizer, senior market strategist at Westpac Banking Corp. Economists will be hoping Trump will give the rough magnitude of his plans, allowing them to calculate the implications for US inflation and economic growth, he said. "Right now no-one knows but the market is slightly optimistic in its expectations."

The kiwi didn't move much after figures showed the trade deficit widened to $283 million in January as crude oil drove imports to a record. In other economic news, New Zealand business confidence slipped in February while remaining relatively optimistic, as the country's pace of economic growth starts hitting a "mature stage" where it becomes harder to keep hitting new highs.

A net 16.6 percent of firms are optimistic about the general outlook for the economy, down from 21.7 percent in December, according to the ANZ Business Outlook. A net 37.2 percent see their own activity expanding in the year ahead, down from 39.6 percent, and still north of the 28 percent long-run average.

Speizer said a speech by Federal Reserve chair Janet Yellen on Friday in the US is the other major event this week, as the market seeks clues to whether the Fed will hike in March.

Speizer said he favours a June hike "but there's some possibility of March."

The kiwi traded at 57.78 British pence from 57.89 pence late yesterday. It traded at 93.47 Australian cents from 93.55 cents and slipped to 67.84 euro cents from 68.10 cents. The kiwi rose to 80.90 yen from 80.71 yen and fell to 4.9341 yuan from 4.9468 yuan.

New Zealand's two-year swaps rose 2 basis points to 2.32 percent while 10-year swaps fell 1 basis point to 3.45 percent.

BusinessDesk.co.nz

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