NZ dollar holds high on jobs stats, Wheeler guidance

NZ dollar holds near month-high on stronger jobs market, Wheeler guidance

By Jonathan Underhill

Feb. 4 (BusinessDesk) - The New Zealand dollar traded near a month-high as stronger headline labour market data and signals from Reserve Bank governor Graeme Wheeler that he won't rush to cut interest rates trumped weaker prices at this week's dairy products auction.

The kiwi traded at 66.67 US cents at 5pm in Wellington, from 65.39 cents yesterday. Earlier today it touched 66.97 cents. The trade-weighted index gained to 72.63 from 71.99 yesterday.

Unemployment unexpectedly fell to 5.3 percent in the fourth quarter and employment grew 0.9 percent, according to government figures yesterday. Meanwhile, Wheeler gave a speech in which he asserted that extremely low headline inflation wasn't on its own a guaranteed catalyst for an interest rate cut and monetary policy was flexible enough to take a broader view of the impact of lower rates. Those two events were enough to drive up the kiwi even after prices fell in the latest GlobalDairyTrade auction, including a 10.4 percent slump for whole milk powder.

"The dairy auction was negative but then we had two positive events - much stronger than expected headline labour data and Wheeler's speech where he very clearly and strongly emphasised we shouldn't be reading too much into headline inflation outcomes," said Robert Rennie, chief currency strategist at Westpac Banking Corp. "That sounds like a central banker reluctant to ease."

The kiwi slipped to 92.73 Australian cents from 93.10 cents yesterday, having touched as high as 93.87 cents overnight.

Rennie said the market had gone into this week betting the the kiwi dollar would fall against the Australian dollar, which accentuated the size of the opposite move. He said there is a mildly positive outlook for the kiwi, short term, which could push up to 67 US cents or 68 cents, helped by a weaker US dollar.

"Beyond that we're still expecting renewed US dollar strength and prolonged weak New Zealand inflation," he said. "So eventually we will see a cut to the OCR" which he sees falling to 2 percent by year-end.

The New Zealand dollar advanced to 45.72 British pence from 45.37 pence yesterday, rose to 60.12 euro cents from 59.91 cents, and increased to 4.3845 yuan from 4.3025 yuan. It rose to 78.69 yen from from 78.25 yen.

The two-year swap rate was unchanged at 2.62 percent and 10-year swaps rose 3 basis points to 3.31 percent.

(BusinessDesk)

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