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NZ dollar falls as US bond yields rise

NZ NewswireNZ Newswire 28/10/2016 Jonathan Underhill

New Zealand Money (NZD) © LazingBee/iStock/Getty Images New Zealand Money (NZD) The New Zealand dollar fell amid a global sell-off in bonds that pushed the yield on the 10-year benchmark US bond to a five-month high and drove up the greenback.

The Kiwi fell to 71.36 US cents as at 5pm from 71.51 cents late Thursday. The trade-weighted index was little changed at 77.07.

The yield on 10-year US Treasuries rose as high as 1.87 per cent overnight, the highest since late May according to Reuters data, after stronger-than-expected UK economic growth figures.

Bond prices have been declining, pushing yields higher, amid speculation central banks are nearing the end of their stimulus measures.

"What's been driving it all week has been the stronger US dollar and that's been based on higher US bond rates," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

"The market has finally twigged that central bank quantitative easing is going to be less across the board, maybe with the exception of Japan."

Mr Kelleher expects the Kiwi to "slowly drift off" against the US dollar, with the greenback broadly stronger and expectations of a Reserve Bank of New Zealand (RBNZ) rate cut next month.

Still, the Kiwi may struggle to push lower through 69.5 US cents or even the psychological level of 70 cents unless something triggers investors to be more wary of risk, such as a sell-off in US stocks, ahead of the RBNZ's meeting on November 10.

The yield on New Zealand's 10-year government bonds reached 2.73 per cent, the highest since late May. New Zealand's two-year swap rate rose 1 basis point to 2.11 per cent while 10-year swaps jumped 8 basis points to 2.81 per cent, the highest since June 23.

The Kiwi traded at 58.59 British pence from 58.54 pence late Thursday and slipped to 4.8382 yuan from 4.8462 yuan.

It dropped to 65.44 euro cents from 65.61 cents and rose to 75.03 yen from 74.68 yen. It gained to 93.97 Australian cents from 93.76 cents.

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