NZ dollar may be set to break out of its bearish trend
By Jenny Ruth
Sept. 6 (BusinessDesk) - The New Zealand dollar is holding its recent gains and may break out of its bearish trend by
the market close in New York.
The kiwi was trading at 63.82 US cents at 5pm in Wellington from 63.76 cents at 7:55 am. It is up significantly from the
week’s low at 62.67 cents and is headed for a 1.2 percent gain since Friday's close in New York. The trade-weighted
index was at 71.10 points from 71.03.
“We’ve had six consecutive down weeks – this could be quite a key reversal indicator” if the kiwi manages to close above
64 US cents, says Mark Johnston, private client manager at OMF.
Improving global sentiment, after the US and China agreed to high-level trade negotiations early next month, has seen a
significant unwinding of safe-haven assets, Johnston says. US Treasury yields have risen about 10 points across the
board and there has also been selling of the Swiss franc and yen, he said.
“It’s huge, bigger than Texas, but it doesn’t feel as if yields have bottomed out yet. I would still expect the Fed to
be cutting rates.”
The market has priced in four 25 basis-point cuts from the Federal Reserve by the middle of next year.
Johnston notes that would bring the Fed Funds rate down to 1-1.25 percent while ANZ Bank is predicting that both the
Reserve Bank of Australia and the Reserve Bank of New Zealand, which currently have cash rates of 1 percent, will be
cutting to 0.25 percent.
“It’s hard to see why the US dollar would fall too much out of favour,” Johnston says.
Trade talks between the US and China broke down in May and both have since imposed additional tariffs on the other
country’s exports.
While they have agreed that China’s chief trade negotiator, Vice Premier Liu He, will meet US Trade Representative
Robert Lighthizer in Washington next month, the two sides remain far apart.
“It’s misplaced optimism, to my mind,” Johnston says, referring to the sea change in sentiment on such a slim
development.
“It would be nice to see something to come of this” and at least it is a “thawing in relations.”
One key to whether the renewed optimism lasts will be the US non-farm payroll figures for August due out later today.
The market is expecting a jobs gain of 160,000, a 0.3 percent rise in US wages and for the unemployment rate to remain
steady at 3.7 percent.
Johnston isn’t convinced a rally in the kiwi can last. “I tend to think the upside would be somewhat limited.”
The New Zealand dollar was trading at 93.59 Australian cents from 93.47, at 51.76 British pence from 51.70, at 57.81
euro cents from 57.75, at 68.25 yen from 68.22 and at 4.5606 Chinese yuan from 4.5568.
The two-year swap rate edged up to a bid price of 0.9473 percent from 0.9092 yesterday. Ten-year swaps climbed to 1.2975
percent from 1.1900, reflecting the gain in US Treasuries.
(BusinessDesk)