NZ dollar gains as US bond yields come off the boil

Wednesday 10th October 2018

The New Zealand dollar edged up after Dallas Federal Reserve President Robert Kaplan noted the need for caution about the pace of interest rate increases and US bond yields reversed some of their recent gains.

The kiwi increased to 64.66 US cents as at 8am in Wellington from 64.44 cents yesterday. The trade-weighted index advanced to 70.84 from 70.64.

The yield on US 10-year Treasuries slipped 2 basis points to 3.21 percent as US markets re-opened from their Columbus Day holiday. Kaplan, who isn't a voting member on the Federal Open Market Committee, said the bond market was sending a gloomy signal about long-term economic prospects as the flattening of the yield curve - the difference between short-term and long-term rates - indicated investors see growth slowing. Kaplan said the Fed should keep raising the federal funds rate another three times, then pause to see where the benchmark is relative to a neutral setting.

"The USD generally pared back gains overnight, after the halt in the bond market rout. This has seen the kiwi move a touch higher, but not enough to break resistance," ANZ Bank New Zealand economist Liz Kendall said in a note. "Unless we see a resurgence in volatility, another attempt to break higher could be on the cards, although we maintain a downward bias over the medium term."

The kiwi dollar has dropped 9.9 percent since the start of the year, although inflation has remained relatively tame through that period. The consumers price index rose 1.5 percent in the year through June. ANZ's inflation gauge yesterday indicated an accelerating pace of price rises in the September quarter, and tomorrow's monthly food prices index will be closely watched.

Bank of New Zealand senior markets strategist Jason Wong said the inflation gauge supported BNZ's view that core and headline inflation pressures are escalating faster than the Reserve Bank forecasts, and that it's unlikely governor Adrian Orr will cut the official cash rate.

Local data today include September consumer spending on credit and debit cards and August accommodation data.

The local currency traded at 91.08 Australian cents from 90.95 cents yesterday and rose to 4.4763 Chinese yuan from 4.4571 yuan. It increased to 73.10 yen from 72.88 yen yesterday and traded at 49.18 British pence from 49.22 pence. The kiwi increased to 56.25 euro cents from 56.07 cents.

(BusinessDesk)

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