NZ dollar unwinds some gains against Aussie

OMF senior dealer foreign exchange Mark Johnson

The New Zealand dollar unwound yesterday's gains against the Australian dollar but still ended the week higher, despite improving iron ore prices giving the Aussie a boost.

The kiwi was trading at 92.97 Australian cents at 5pm from 93.70 cents yesterday and 92.28 cents late Friday a week ago in New York. Against the greenback, it fell over the week to 70.01 US cents from 69.97 cents and from 70.37 cents yesterday.

The kiwi gained strongly yesterday against both the Aussie and the greenback on news that consumer prices rose at their fastest annual pace since the September 2011 quarter in the first three months of 2017, solidifying market expectations the central bank will lift rates sooner than it's forecasting.

Market pricing Friday continued to point to a rate hike next March, well ahead of the RBNZ's forecast mid-2019. New Zealand's two-year swap rate rose 1 basis point to 2.31 percent and 10-year swaps rose 6 basis points to 3.32 percent.

The kiwi, however, opened weaker after Dallas Federal Reserve president Robert Kaplan affirmed his view that the US central bank will lift rates another two times this year, stoking demand for the greenback. Also helping US dollar sentiment were comments from US Treasury Secretary Steven Mnuchin that he would unveil a plan to cut taxes "soon, very soon" and predicted it would be passed by Congress this year.

Mark Johnson, a senior foreign exchange dealer at OMF in Wellington, said iron ore "had a good bounce overnight, which gave the Aussie a lift and the bit of a rebound in the Aussie may have dragged us down a bit", although the kiwi was supported at 92.8 Australian cents.

Both the Aussie and the kiwi will likely be pushed around by French presidential election news this weekend, in particular after a shooting on the Champs-Elysees boulevard, in which one policeman was killed and two others were wounded. Markets were cheered, however, by polls that indicate centrist candidate Emmanuel Macron set to come out on top, although there is little clarity on which candidates will be in likely run-off vote.

In the shorter term, markets will be watching for euro-zone manufacturing and services figures for April as well as flash US manufacturing and services data for April and existing home sales for March later in the global trading day.

The kiwi slipped to 65.34 euro cents from 65.58 cents yesterday and fell to 54.72 British pence from 54.93 pence. The kiwi eased to 76.48 yen from 76.65 yen yesterday and fell to 4.8166 from 4.8439 yuan.


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