NZ dollar gains as US budget deal deadline comes into focus

The New Zealand dollar rose against the greenback on concern there are risks around Republican leaders looking to pass tax reform legislation and reach a budget deal with the Democrats before the end of the week to avoid a government shutdown. 

The New Zealand dollar traded at 70.10 US cents as at 5pm in Wellington from 69.89 cents in New York on Friday. The trade-weighted index rose to 73.98 from 73.85.

The US dollar - which gained overnight Friday on optimism US tax reforms will be enacted, including slashing the corporate rate to 21 percent from 35 percent - came under some pressure today on lingering uncertainty as Republics and Democrats must agree on a spending plan for the rest of the fiscal year. before the end of Friday. 

Otherwise, many federal government functions are frozen, and many federal employees are furloughed although essential activities - such as national security - continue.  The  Washington Post reported that while Congress averted a partial shutdown earlier this month with a two-week deal that left spending constant and punted on all other policy questions, it's unclear if either side has interest in another short-term deal. 

The kiwi saw "a bit of a grind higher" in light trading, said ANZ senior economist Phil Borkin. "It may be the government shutdown possibility in the US looming in the background. That might be holding back sentiment about the tax package," he said.  He noted, however, the holiday season may already be sidelining some kiwi dollar investors or they may be waiting for more data later in the week, like the third-quarter gross domestic product data on Thursday, which is expected to show growth slowed to 0.6 percent in the quarter for an annual pace of 2.4 percent. The year's final dairy auction and the ANZ business confidence survey will also garner interest, said Borkin. 

The kiwi dollar traded a 52.56 British pence versus 52.72 pence in New York on Friday as Prime Minister Theresa May prepares to present her plan for the Brexit transition period. 

It was at 59.58 euro cents versus  59.53 euro cents and at 78.98 yen from 78.78 yen on Friday in New York. It was at 91.49 Australian cents from 91.39 cents and traded at 4.6337 yuan from 4.6235 yuan.

New Zealand’s two-year swap rate rose 1 basis points to 2.18 percent and the 10-year swaps rose 2 basis points to 3.09 percent.

(BusinessDesk)