NZ dollar gains, seen range-bound as traders focus on Trump economics

Wednesday 23rd November 2016

The New Zealand dollar regained the ground it shed against the greenback overnight and is expected to be relatively range-bound through to the end of 2016 as traders focus on US president-elect Donald Trump and the potential for his policies to move markets.

The kiwi dollar rose to 70.62 US cents as at 5pm in Wellington, from 70.47 cents at the start of the day and from 70.78 cents late yesterday. The trade-weighted index was lower at 77.68 from 77.79.

Fundamentals for the kiwi dollar are relatively sound, with the rebound in dairy prices and record migration helping underpin the economy, and interest rates that are at a premium to many other developed markets, even after a Reserve Bank rate cut on Nov. 10, seen as the last in an easing cycle. But traders said that's being overshadowed by the implication's of Trump's policies, which are seen as stimulating the US economy, stoking inflation and interest rates.

"The US dollar is dominating markets at the moment and has taken a bit of the focus off the fundamental drivers of the kiwi-Aussie and some of the other cross rates," said John Chisholm, corporate dealer at HiFX.

Trump campaigned on policies including opposition to free trade, including slapping a 45 percent tariff on imports from China, which would have "huge ramifications for Australia even more than New Zealand," Chisholm said. He expects the New Zealand dollar trade in a range of 70 US cents to 74 cents through until the end of the year. It could fall to the 69s but I'm not expecting it to really fall away."

HiFX was taking the rebound in dairy with a grain of salt because it was largely being driven by issues of reduced volumes, he said.

The kiwi fell to 95.16 Australian cents from 95.65 cents yesterday even after figures showed the value of building work done in Australia dropped a bigger-than-expected seasonally adjusted 4.9 percent in the third quarter.

Traders will be watching for the minutes of the last US Federal Reserve policy meeting tonight, which are expected to show confidence that inflation is returning to 'normal levels' as the US economy expands, making an interest rate hike in December a near-certainty.

The kiwi fell to 4.8655 yuan from 4.8775 yuan and traded at 78.46 yen from 78.36 yen. It rose to 56.87 British pence from 56.67 pence and slipped to 66.48 euro cents from 66.60 cents.

The two-year swap rate rose 2 basis points to 2.21 percent, while the ten-year swap rate rose five basis points to 3.22 percent.

BusinessDesk.co.nz

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