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NZ dollar little changed as Trump impact weighed, volatility remains low

Jonathan Underhill
Mon, 30 Jan 2017

By Jonathan Underhill

Jan. 30 (BusinessDesk) - The New Zealand dollar was little changed near its highest in more than two months, having rallied through January, as low global volatility ensures the so-called carry trade remains popular.

The kiwi traded at 72.65 US cents as at 5pm in Wellington, from 72.62 cents in late New York trading on Friday and 72.45 cents in Wellington at the end of last week.The trade-weighted index slipped to 79.46 from 79.58 on Friday, having reached 79.76 last week, the highest since April 2015.

Traders said financial markets haven't reacted much to US President Donald Trump's temporary ban on travellers from seven Muslim-majority countries, which sparked an outcry from leaders of other countries and created chaos at American airports, because it isn't yet clear what economic impact his protectionist policies may have.

The Chicago Board Options Exchange Volatility Index, or VIX, is near its lowest levels since before the global financial crisis, which has given investors more appetite for the carry trade, where they borrow where interest rates are lower to buy higher-yielding New Zealand assets.

"There is a little bit of concern in the (US) dollar but markets have been very resilient to these protectionist issues," said Chris Weston, chief market strategist at IG Markets. "The market is still trying to connect the dots to see if there's an economic issue rather than just a humanitarian issue" and whether some assets deserve a high risk premium as a result.

If economic concerns came to the fore, it was likely the Federal Reserve wouldn't be as aggressive in raising interest rates, he said. "We're in a period of unknowns in so many things".

The kiwi didn't move much after figures showed New Zealand's monthly trade deficit was little changed in December from the year-earlier month at $41 million as imports and exports both slid by about the same amount. The deficit is less than the $98 million anticipated by economists, according to a consensus forecast.

Traders are also looking ahead to labour market data on Wednesday which may show the jobless rate held below 5 percent, while the Federal Open Market Committee isn't expected to change US interest rates at the end of its two-day meeting but may give an indication of its timing for a hike. US payrolls figures for January round out the week, with the world's biggest economy forecast to have added 168,000 jobs this month, up from 156,000 the previous month.

The kiwi traded at 96.16 Australian cents from 96.23 cents in New York on Friday. It traded at 4.9974 yuan, and briefly topped 5 yuan, from 4.9946 yuan and fell to 67.70 euro cents from 67.89 cents. It traded at 57.76 British pence from 57.88 pence last week and fell to 83.14 yen from 83.58 yen.

New Zealand's two-year swap rate fell 3 basis points to 2.39 percent while the 10-year swaps fell 5 basis points to 3.51 percent.


Jonathan Underhill
Mon, 30 Jan 2017
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NZ dollar little changed as Trump impact weighed, volatility remains low