NZ dollar rises on improved business confidence; FOMC and RBNZ in focus

Wednesday 26th September 2018

The New Zealand dollar was buoyed by improving business confidence ahead of local and US monetary policy decisions tomorrow.

The kiwi traded at 66.70 US cents at 5pm in Wellington versus 66.47 US cents at 8am in Wellington and 66.40 cents yesterday. The trade-weighted index was at 72.22 from 71.97.

The New Zealand dollar got a lift from news that firms surveyed for the latest ANZ business outlook were the least pessimistic since May. A net 38.3 percent of 390 companies surveyed this month expect general business conditions to deteriorate in the coming 12 months. That was a sharp rebound from the net 50 percent expecting weaker conditions in August.

Ross Weston, a senior trader at Kiwibank. said record short positions in the kiwi - where traders bet an asset will decline so they can buy it back at a cheaper price - means the currency responds quite "viciously" to positive news.

"The market is very sensitive to any positive surprises because it has got itself into such a negative spiral," he said. It barely blinked on news today of a record trade deficit in August that was much wider than expected.

Weston said markets will now tread water ahead of the US Federal Reserve's statement early tomorrow New Zealand time. With the Fed widely expected to lift rates, investors are focused on whether or not it will strip out the reference to "accommodative" monetary policy - given how far rates have risen - and what its forecasts will show for 2019.

Domestically, markets are expecting the New Zealand central bank to keep rates on hold at 1.75 percent and continue to signal that a possible cut is on the table. Weston said, however, the central bank will likely rejig the statement to no longer say "recent economic growth has moderated" given the strong second-quarter growth.

Any hint that the central bank is less concerned about growth could push the kiwi higher, particularly given the current market positioning, he said.

The kiwi was at 91.72 Australian cents from 91.63 cents yesterday and increased to 75.29 yen from 74.89 yen. It traded at 56.61 euro cents from 56.53 cents and at 50.61 British pence from 50.65 pence. It rose to 4.5826 Chinese yuan from 4.5536 yuan.

New Zealand's two-year swap rate was unchanged at 2.04 percent while the 10-year swaps rose 1 basis point to 2.94 percent.

(BusinessDesk)

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