Dollar gives way to greenback

The New Zealand dollar is heading for a 1.7 per cent fall against the greenback this week, in a quiet end to the week after the central bank signalled plans to keep interest rates on hold for some time yet.

The kiwi dropped to US71.91c at 5pm yesterday from US73.15c a week ago in New York, and was little changed from US71.84c at 8am yesterday and US71.96c late on Thursday. The trade- weighted index was at 78.36 versus 78.32 on Thursday and heading for a 0.9 per cent weekly decline.

“Compared to the excitement of Thursday, it was relatively stable,” said ANZ Bank New Zealand senior economist Philip Borkin. “It ground a tiny little bit higher in Asia but the gains were modest in a quiet day.”

The kiwi fell sharply on Thursday after the central bank kept interest rates on hold at 1.75 per cent and projected the official cash rate to rise just 25 basis points by 2020.

With little on the domestic data calendar, Borkin said the kiwi is likely to continue treading water around these levels. While the market is still testing early hikes and most economists think hikes are going to be earlier than the central bank is forecasting, “it is really going to take evidence that inflation is picking up” to drive any moves, he said. The market pricing for a November rate hike is about 50 per cent.

Borkin also noted that with few drivers on the data front in the US, the focus will remain on politics. He said markets will be waiting for further detail on possible tax cuts after US President Donald Trump’s hints late in the week.

While he said any clarity could be weeks away, it has brought the idea of fiscal stimulus “back to the markets’ mind” and it will likely be the next catalyst that will move the US dollar significantly.

The kiwi fell to A93.98c from A94.40c late on Thursday, with the aussie benefiting from positive Chinese trade data. It was unchanged at 57.49 British pence and was at 67.45 euro cents from 67.31c. The kiwi rose to 81.73 yen from ¥ 80.68 and was at 4.9453 yuan versus 4.9423 yuan.

New Zealand’s two- year swap increased 2 basis points to 2.3 per cent while the 10- year swaps rose 5 basis points to 3.43 per cent.