NZ dollar rally may slow as upcoming Chinese data keeps outlook murky

Monday 11th July 2016

The New Zealand dollar's run to a 14-month high may take a breather this week as investors hold off from taking firm positions ahead of Chinese economic data due at the end of the week.

The kiwi traded at 72.78 US cents at 5pm in Wellington from 72.92 cents at 8am and 73.04 cents on Friday in New York. The trade-weighted index fell to 77.68 from 77.90 last week.

New Zealand's currency was propelled to its highest level in 14 months after stronger than expected jobs growth in the US eased concerns the world's biggest economy may slip into recession, while tepid wage inflation kept investors pessimistic the Federal Reserve will hike interest rates this year. With a number of Fed speakers scheduled for this week and Chinese economic and industrial production figures due on Friday, the kiwi is expected to stay in demand due to New Zealand's relatively high interest rates.

"There could be speed bumps at the end of the week, especially from China if we get weaker data which might signify a little bit of risk being taken off," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "There still room for further gains in the kiwi - the next real resistance level is around 75 cents. I don't think we'll do that this week, but we could start inching a little higher."

OMF's Ive said investors have scaled back their expectations for a rate cut by the Reserve Bank in August after deputy governor Grant Spencer's speech on the housing market last week didn't introduce any new macroprudential tools. Still, the currency remains elevated, and if the TWI climbed above 80 Ive said exporters would be putting more pressure on the RBNZ to cut.

New Zealand's two-year swap rate decreased 1 basis point to 2.21 percent and 10-year swaps were unchanged at 2.49 percent.

The local currency fell to 96.19 Australian cents from 96.50 cents last week after Prime Minister Malcolm Turnbull declared victory in Australia’s federal election, ending a week of uncertainty over the outcome.

The kiwi slipped to 4.8663 Chinese yuan from 4.8848 yuan last week and increased to 73.67 yen from 73.43 yen. The kiwi fell to 65.89 euro cents from 66.06 cents last week and dropped to 56.16 British pence from 56.37 pence.

BusinessDesk.co.nz

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