Kiwi dollar ends week higher by 0.9%

The New Zealand dollar ended 0.9 per cent higher on the week after markets were disappointed when the US Federal Reserve didn’t announce plans to accelerate the pace of rate increases later in the year.

The kiwi was trading at US69.90c yesterday versus US69.91c late on Thursday and US69.31c early on Monday. On a trade weighted- index basis it was at 75.97 versus 75.98 on Monday and 76.07 late on Thursday.

There was plenty of event risk during the week, including rate decisions from the Bank of Japan and the Bank of England, and key economic data in New Zealand and Australia.

“But I think the over- arching theme from this week was the dovish hike from the Fed,” said Robert Rennie, chief currency strategist at Westpac Banking Corp in Sydney.

There was “a quite dramatic drop in measures of volatility around the world and that environment is probably fairly supportive for the so- called commodity currencies, the Australian dollar and the New Zealand dollar,” he said.

Looking ahead, he doesn’t expect much action in the kiwi ahead of next week’s Reserve Bank of New Zealand interest rate review and statement and said the upside was likely to be capped at US70c and he would be surprised to see it move much below US69.60c.

Economists are widely expecting the central bank to keep rates on hold at 1.75 per cent at next week’s review and maintain a neutral bias.

“We expect next week’s statement to retain the message that ‘ monetary policy will remain accommodative for a considerable period’,” said Westpac Bank acting chief economist Michael Gordon.

The kiwi was at 56.59 British pence from 56.99p and at € 64.88c from € 65.19c. It was at A90.93c from A91.03c and 4.8236 yuan from 4.8206 yuan and ¥ 79.30 from ¥ 79.28.

The two- year swap rate rose 2 basis points to 2.30 per cent while the 10- year swaps rose 2 basis points to 3.52 per cent.