NZ dollar heads for 4.3% quarterly gain on TWI basis after shaking off Brexit

The New Zealand dollar is heading for a 4.3 percent quarterly gain amid perceptions the global economy will prove more resilient to Brexit than it was to the global financial crisis, keeping intact demand for high-yielding currencies.

The trade-weighted index was at 75.97 as at 5pm in Wellington, from 75.93 yesterday and up from 72.88 three months ago. The kiwi was little changed from yesterday at 70.84 US cents, having gained to as high as 71.36 cents overnight, and has gained from 69.03 cents on March 31.

Globally, investors have regained some of their nerve after sifting through the rhetoric and doomsayers on the UK's vote to leave the European Union. The Chicago Board Options Exchange's Volatility Index, known as Wall Street's 'fear gauge', jumped as high as 26.72 on Monday after the Brexit vote last Thursday in the UK. It fell back to 16.64 overnight. In October 2008 it spiked as high as 89.53 in the wake of Lehman Brothers filing for bankruptcy the previous month.

"The market has been talking about a Lehmans moment, a Bear Stearns moment and whether Brexit was one of those," said Robert Rennie, chief currency strategist at Westpac Banking Corp. "But leverage and liquidity are very different, we've been through multiple stress tests and central banks know what to do."

Rennie said fallout from Brexit is likely to be localised to the UK and Europe and, anyway, the reality is any exit won't happen fast because it risks becoming a constitutional nightmare for the UK and likely needs to be enacted by legislation that wouldn't survive the British parliament as it stands and the nation may end up holding general elections first.

"From a market perspective it doesn't happen tomorrow, it probably doesn't happen next month," Rennie said. Europe and the UK can bicker and fight for the next three months but there's no obvious trigger."

With prolonged uncertainty, the US Federal Reserve will be less inclined to hike interest rates, so that even if the Reserve Bank of New Zealand cuts rates in August or the Reserve Bank of Australia cuts rates in coming months, "we're still attractive in a global sense".

The kiwi didn't move much after government figures showed residential building consents declined 0.9 percent in May with Auckland permits still falling short of demand. Seasonally adjusted consents slipped to 2,377 in May from 2,398 in April when they rose 6.8 percent, the data showed. It also was little changed after the ANZ Business Outlook showed New Zealand businesses grew more optimistic in June, with a net 20 percent of firms surveyed expecting better economic conditions in the coming year, up from a net 11 percent in May.

The New Zealand dollar declined to 95.30 Australian cents from 95.60 cents yesterday and slid to 52.88 British pence from 53.09 pence.

The kiwi gained to 72.67 yen from 72.45 yen and fell to 4.7014 yuan from 4.7094 yuan. It slipped to 63.79 euro cents from 63.97 cents.

New Zealand's two-year swap rate rose 1 basis point to 2.22 percent, and 10-year swaps gained 1 basis points to 2.65 percent.

(BusinessDesk)