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Kiwi holds up as budget meets expectations

NZ Newswire logoNZ Newswire 25/05/2017

New Zealand coin is arranged for a photograph in Wellington, New Zealand © Mark Coote New Zealand coin is arranged for a photograph in Wellington, New Zealand The New Zealand dollar held above US70c on Thursday as Finance Minister Steven Joyce's maiden budget met investors' expectations in affirming a strong economic outlook, allowing tax adjustments and a hike in infrastructure spending.

The kiwi traded at US70.41c at 5pm in Wellington from 70.43c at 8am, up from 69.94c Wednesday. The trade-weighted index advanced to 75.98 from 75.79 yesterday.

The Treasury's latest forecasts predict New Zealand's economic growth will peak in 2019 at an annual pace of 3.9 per cent, spurred on by strong migration and a heavy construction pipeline.

The pace of economic growth filled the government's coffers more than expected, giving Mr Joyce room to return cash to taxpayers through higher income thresholds for the lowest tax bands while spending the rest in a $32.5 billion infrastructure pipeline over the next four years.

"Expectations were building towards today and that the numbers were looking pretty good, which proved to be the case," said Phil Borkin, an economist at ANZ Bank New Zealand.

"That was already in the price, and there wasn't much to surprise the market, hence the kiwi's lack of movement."

Mr Borkin said investors were reluctant to move on shorter-dated interest rates in New Zealand because of the Reserve Bank's flat track for the official cash rate, whereas the longer end is following global markets.

He said the long-term trend for the kiwi dollar is to depreciate against the greenback as US interest rates rise, reducing the yield advantage New Zealand's held for the past decade.

However, the latest uncertainty over the timing of the Fed's hikes meant there was potential for the kiwi "to do okay" in the near-term.

The kiwi was little changed at A93.84c from 93.92c and increased to 4.8373 Chinese yuan from 4.8196 yuan. It edged up to 62.63 euro cents from 62.54 cents and climbed to 54.21 British pence from 53.89 pence. The local currency rose to 78.56 yen from 78.22 yen.

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