NZ dollar gains as Fed's Clarida backs gradual US rate hikes; RBNZ looms

Wednesday 28th November 2018

The New Zealand dollar gained as Federal Reserve vice chair Richard Clarida backed the central bank's gradual approach to raising interest rates, and ahead of the Reserve Bank's six-monthly report on financial stability.

The kiwi increased to 67.87 US cents as at 8am in Wellington from 67.64 cents yesterday, staying within recent ranges. The trade-weighted index advanced to 74.32 from 73.96.

The yield on 10-year US Treasuries fell 2 basis points to 3.5 percent after Clarida said risks to the US economy have diminished and the Fed has greater scope to gather data when setting the federal funds rate. His speech was interpreted as dialling back comments earlier this month that the Fed could pause interest rate hikes as early as March next year. Chair Jerome Powell's speech tomorrow will be closely watched as rising US rates pushed the 10-year Treasury yield to a seven-year high, sapping demand for equities.

Meanwhile, the Reserve Bank will release its financial stability report today and may loosen its restrictions on high loan-to-value mortgage lending. Governor Adrian Orr will front a media briefing and select committee hearing on the report.

"US Treasury yields are also broadly unchanged overnight, with Fed vice chair Clarida’s much-anticipated speech having little impact," Bank of New Zealand interest rate strategist Nick Smyth said in a note. "The USD is broadly higher once again, although the NZD has bucked the trend and is up slightly on the day."

US President Donald Trump told the Wall Street Journal it was highly unlikely he won't increase tariffs further on Chinese goods, saying if he can't reach a deal an additional US$267 billion will be imposed. The interview comes ahead of the G20 leaders' summit in Buenos Aires, where Trump will meet his Chinese counterpart Xi Jinping on the sidelines to discuss trade. The dispute between the two nations has spilled over to the rest of the world and is seen as a drag on global growth.

The kiwi rose to 94.02 Australian cents from 93.62 cents yesterday and increased to 4.7168 Chinese yuan from 4.6974 yuan. It climbed to 77.22 yen from 76.76 yen yesterday and advanced to 60.07 euro cents from 59.68 cents. The local currency rose to 53.28 British pence from 52.80 pence yesterday.

(BusinessDesk)

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