NZ dollar hits 14-month high as stocks, commodities rally on upbeat investor sentiment

Wednesday 13th July 2016

The New Zealand dollar gained, following stock markets and commodity prices higher, as investors recovered their lost confidence from Britain's vote to leave the European Union.

The kiwi rose to a new 14-month high of 73.23 US cents and traded at 72.96 cents at 8am in Wellington from 72.63 cents yesterday. The trade-weighted index advanced to 77.84 from 77.63 yesterday.

Stocks on Wall Street extended recent gains after aluminium producer Alcoa kicked off the US earnings season with a bigger profit than expected. That helped lift investor sentiment which has been recovering from the Brexit vote last month, and was buoyed this week by the prospect of more Japanese stimulus with Prime Minister Shinzo Abe's conservative coalition sweeping the upper house. Commodity-sensitive currencies, such as the kiwi and Australian dollar, gained as a 4.5 percent increase in Brent Crude oil prices lifted other raw material prices.

"A positive start to the US earnings season has helped sentiment. A further kicker has been a more positive flow of economic data over recent weeks," Bank of New Zealand currency strategist Jason Wong said in a note. The kiwi "has been buoyed by positive risk sentiment and higher commodity prices, although we’d note that NZ commodity prices are underperforming."

Data out today include June food prices, which will provide an indication of where consumer prices will go when the quarterly figures are released next week. The Reserve Bank refrained from cutting interest rates last month, saying it wanted to see the June economic and inflation data as it balances the threat of rising house prices to the country's financial stability with muted consumer price inflation.

RBNZ assistant governor John McDermott will deliver a speech on how the bank makes monetary policy decisions today, but the speech won't provide any guidance on next month's rate review.

The local currency extended its gain against the yen, rising to 76.43 yen from 74.82 yesterday as traders sell Japan's currency on the expectation Abe's electoral victory will see more stimulus for the world's third-biggest economy.

The kiwi fell to 55.05 British pence from 55.67 pence yesterday as the pound recovers from the Brexit vote with investors gaining confidence with Theresa May winning a short contest to see who would replace Prime Minister David Cameron.

The New Zealand dollar rose to 65.94 euro cents from 65.54 cents, and increased to 4.8781 Chinese yuan from 4.8560 yuan. It was little changed at 95.64 Australian cents from 95.75 cents.

BusinessDesk.co.nz

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