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NZ dollar gains to month-high vs greenback

NZ Newswire logoNZ Newswire 8/12/2016 Jonathan Underhill
The kiwi closed the trading on month highs against both the greenback and the Australian dollar. © REUTERS/David Gray The kiwi closed the trading on month highs against both the greenback and the Australian dollar.

The New Zealand dollar rose to month highs against the greenback and the Australian dollar after Reserve Bank Governor Graeme Wheeler said he sees "continued strong growth" in the economy, a sentiment backed up on Thursday with upgraded Treasury forecasts for growth for the next three years.

The kiwi dollar rose to 72.10 US cents as at 5pm in Wellington, from 71.19 cents late Wednesday and climbed to 96.16 Australian cents from 95.71 cents. The trade-weighted index climbed to 78.86 from 78.17.

Wheeler told a business conference in Greymouth on Thursday that New Zealand was probably past the low point for CPI inflation, which would pick up with economic growth being driven by "construction spending, continued migration, tourist flows, and accommodative monetary policy."

Wheeler's speech was followed by the release of the Half-Year Economic and Fiscal Update (HYEFU), which projected economic growth averaging 3 per cent a year for the next five years, swelling the tax take and allowing the government to increase spending on infrastructure such as Auckland's City Rail Link.

By contrast, Australia's economy contracted in the third quarter and Thursday's data revealed a wider-than-expected trade deficit in October.

"Wheeler was a bit more positive than he was in November and then the HYEFU showed a really good fiscal position," said Imre Speizer, senior market strategist at Westpac. "They're both supportive for the New Zealand dollar."

Speizer said the strength of the kiwi on the cross rate against the Australian dollar was also driven by outright Aussie dollar selling in the face of the bad GDP and trade figures.

Australia's economic slowdown was "part of a bigger story of the long transition from the mining boom to something else."

Traders have said 72 US cents was a key resistance level for the kiwi. It would need to hold above that level for the next day or so to be seen as a sustainable break higher, Speizer said, and then it will be "probably on the road to something higher - 74 cents."

The kiwi dollar rose to 57 British pence from 56.26 pence after figures overnight showed British industrial production dropped 1.3 per cent in October, against expectations of a gain.

The local currency rose to 66.89 euro cents from 66.41 cents yesterday, ahead of a meeting of the European Central Bank meeting at which President Mario Draghi may extend the ECB's bond purchase programme while hinting at its eventual end.

The kiwi rose to 4.9586 yuan from 4.9051 yuan and rose to 81.77 yen from 81.24 yen.

The two-year swap rate rose 1 basis point to 2.23 per cent and the 10-year swap rate dropped 5 basis points to 3.28 per cent.

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