NZ dollar gains on polls suggesting Brexit less likely

Monday 20th June 2016

The New Zealand dollar rose after polls over the weekend indicated Britain is less likely to vote to leave the European Union, stoking risk sentiment and demand for growth-linked currencies such as the kiwi.

The local dollar rose to 71.17 US cents at 5pm in Wellington, the highest in more than a week, from 70.50 cents at the end of last week. The trade-weighted index rose to 75.56 from 75.23.

Of six polls published over the weekend, three indicated a preference for Britain to remain in the EU, a swing some commentators have linked to the murder of pro-European British MP Jo Cox. The pound rose to a two-week high against the greenback today, equity markets across Asia were stronger and commodity prices rose on perceptions that global financial markets are less likely to be disrupted if the so-called Brexit fails to win public backing in the June 23 referendum.

"Sentiment at the start of this week has certainly been risk on," said Sheldon Slabbert, a sales trader at CMC Markets. Still, "there's so many polls out there" and the undecided vote is still big enough to swing the outcome either way, he said.

Currencies such as the kiwi, which are tied to commodity prices and global growth, have also benefitted from a more dovish Federal Reserve last week and a Bank of Japan less inclined to provide more stimulus to the Japanese economy, Slabbert said. Some traders are now questioning whether the Fed will hike interest rates even once more this year while the BOJ's unwillingness to add to its stimulus measures may indicate it sees glimpses of life in the Japanese economy.

"Markets are perhaps overlooking the fact that technically Japan is still in recession but that recessionary data is starting to wane," he said.

The kiwi rose to 74.46 yen from 73.39 yen on Friday in New York. It was little changed at 48.77 British pence from 49.10 pence at the end of last week.

The currency dipped briefly after a survey showed the BNZ-BusinessNZ performance of services index fell 0.9 of an index point to a seasonally adjusted 56.9 last month, suggesting the pace of growth in New Zealand's services sector slowed in May.

The New Zealand dollar rose to 95.52 Australian cents from 95.26 cents. It rose to 4.6794 yuan from 4.6424 yuan but dropped to 62.51 euro cents from 62.60 cents.

New Zealand's two-year swap rate rose 1 basis point to 2.27 percent and the 10-year swaps rose 4 basis points to 2.78 percent.

BusinessDesk.co.nz

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