NZ dollar may extend decline as US rate advantage set to remain

Monday 8th October 2018

The New Zealand dollar may extend its decline against the greenback as US government bonds offer an increasingly attractive return relative to their Kiwi counterparts.

The local currency traded at 64.39 US cents as at 5pm in Wellington from 64.41 cents on Friday in New York and down from 65.65 cents in Asia last week. The trade-weighted index fell to 70.60 from 71.11 last week.

New Zealand's currency has dropped 2.7 percent so far this month as the yield on US Treasuries shot up to a seven-year high and was recently at 3.23 percent. That compares to a yield of 2.67 percent on New Zealand's 10-year government bonds.

With the Federal Reserve poised to keep hiking short-term interest rates and New Zealand's Reserve Bank saying it probably won't move until 2020, the US yield advantage will probably widen.

"It's good that the market finally came to the realisation that interest rates do mean something and that the US economy is not going to turn any time soon," said Martin Rudings, senior dealer foreign exchange at OMF. "With the US dollar strength the kiwi's going down towards 63.50, and it could probably go lower than that."

New Zealand's two-year rate increased 1 basis point to 2.01 percent. Ten-year swaps rose 4 basis points to 2.93 percent.

Trading was quieter than usual across Asia due to the upcoming Columbus Day holiday in the US.

The People's Bank of China yesterday said it will cut the reserve requirement ratios by another 100 basis points from Oct. 15. China's central bank has been increasing its level of support for the economy against a backdrop of heightening trading tensions with the US. Meanwhile, the Caixin/Markit services purchasing managers' index rose in September.

The kiwi rose to 4.4408 Chinese yuan from 4.4182 yuan last week, and traded at 91.23 Australian cents from 91.16 cents.

The local currency was little changed at 49.11 British pence from 49.06 pence last week and increased to 55.93 euro cents from 55.84 cents. It rose to 73.31 yen from 73.14 yen.

(BusinessDesk)

Comments from our readers

No comments yet