NZD gains as risk sentiment picks up ahead of Brexit vote

Wednesday 22 June 2016 05:16 PM

NZ dollar gains as risk sentiment picks up ahead of Brexit vote

By Jonathan Underhill

June 22 (BusinessDesk) - The New Zealand dollar rose as polls showing there's a good chance Britain will vote to remain in the European Union this week helped restore risk appetite and underpinned equity markets, commodities and growth-linked currencies such as the kiwi and the Aussie dollar.

The kiwi rose to 71.45 US cents from 71.12 cents late yesterday. The trade-weighted index rose to 75.87 from 75.40.

A Survation poll this week had support for remaining in the EU on 45 percent to 44 percent wanting to leave, and 11 percent undecided. Support for remaining in the regional economic bloc has climbed and bookmakers Ladbrokes and Betfair have odds of a triumph for 'remain' voters at 73 percent. Staying in the EU could see risk sentiment climb on Friday after the vote closes at 10am NZ time, while a win for Brexit would see a surge in risk aversion, traders say.

The kiwi "is benefitting from a little bit of positive risk sentiment leading into the Brexit vote - stocks and oil were higher overnight as well," said Mitchell McIntyre, a senior corporate FX dealer at NZForex. "We've seen the polls in the UK shift from a 'leave' towards a 'remain'."

He expects results of the referendum will be clear during the New Zealand trading day on Friday but there was a risk of "choppy" trading in a thin market should the vote count dribble out.

The importance of the vote was underlined by Federal Reserve chair Janet Yellen overnight when she told the US Senate's banking committee that the central bank is watching the situation carefully. Still, she said she didn't "want to overblow the likely impact" of a successful 'leave' vote, which would likely stoke investor demand for safe-haven currencies, such as the greenback. However, she said she didn't anticipate it would induce a recession in the world's biggest economy.

The kiwi didn't move much after government figures showed net inbound migration and tourism have held at record highs. Annual net migration reached a new record 68,400 in May. Overseas short-term visitor arrivals reached 3.29 million in the year ended May 31, up from 3.27 million in the year through April.

The kiwi rose to 95.71 Australian cents from 95.04 cents yesterday. The local currency gained to 63.41 euro cents from 62.72 cents yesterday after European Central Bank president Mario Draghi urged policymakers to push through economic reforms to support the eurozone's recovery, and that he was prepared to stabilise markets and provide liquidity if the UK voted to leave the EU.

The kiwi rose to 74.61 yen from 74.09 yen yesterday and gained to 4.7022 Chinese yuan from 4.6462 yuan.

New Zealand's two-year swap rate rose 2 basis point to 2.31 percent and the 10-year swaps rose 4 basis points to 2.85 percent.

(BusinessDesk)

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