Kiwi dollar spikes as RBNZ challenged on house prices

The Kiwi dollar lifted more than half a US cent after finance minister Grant Robertson proposed adding house prices to the RBNZ’s mandate, dashing any remaining expectations of interest rate cuts.

Tuesday, November 24th 2020, 8:09PM

by BusinessDesk

The currency spiked as news wires lit up with reports of the minister’s letter urging Reserve Bank governor Adrian Orr to consider the effect monetary policy was having on house prices.

The kiwi peaked at 69.89 US cents - up from 69.30 - before easing to 69.70 at 5pm when Orr penned a response in which he agreed to consider the suggestion, but also defended the central bank’s monetary policy settings.

Kiwibank’s head of financial markets, Peter Hunt, said the dollar was hitting new highs as traders took the news to mean future interest rates cuts were off the table.

The exchange of letters pushed the swap rates on government bonds a step higher, the 2-year rate is now 0.2950 and the 10-year is at 0.9275.

Investors had already mostly priced negative rates out of the market following the last monetary policy statement, but today's news cemented the move.

“The market in aggregate is thinking rates don’t go negative and maybe there is a small chance of a further rate cut from here, but not going into negative rates,” Hunt said.

Low interest rates have been a major factor in driving up the prices of all asset classes, including equities with the S&P/NZX 50 benchmark index trading near record highs.

The prospect of interest rates eventually heading higher has cooled demand for yield stocks, but the steady flow of vaccine updates and local company earnings continue to push the index higher.

The S&P/NZX 50 Index rose 51.64 points, or 0.4 percent, to 12,553.38. Within the index, 20 stocks rose, 24 fell and six were unchanged. Turnover was $203 million.

Air New Zealand climbed 5.4 percent to $1.845 as AstraZeneca and Oxford University added to the list of functional vaccines. While it has a lower efficacy, it is also more affordable and easier to distribute.

Fisher & Paykel Healthcare rallied 3.5 percent back to $34.05 ahead of its half-year earnings result tomorrow. The stock has been losing ground as investors have swapped it for companies set to recover once vaccines are fully rolled out.

The five worst performing stocks on the NZX today were property stocks which have powered through the covid-crisis due to rising house prices.

Residential retirement home provider Arvida posted the biggest drop, falling 3.9 percent to $1.73, after reporting first-half net profit fell 7 percent, reflecting about $5 million in additional costs because of the coronavirus crisis.

However, other stocks leveraged to properties prices also saw similar declines. Kiwi Property Group fell 3.5 percent to $1.24, Ryman Healthcare dropped 2.5 percent to $14.33, Argosy Property was down 2.4 percent at $1.44, and Precinct Properties slipped 2.3 percent to $1.37.

Internet infrastructure provider Chorus, also considered a yield stock, fell 1.5 percent to $8.35.

The kiwi dollar also climbed against other currency peers. The trade-weighted index was at 73.73 at 5pm, from 73.44 yesterday. The kiwi traded at 95.26 Australian cents from 95.00 cents, 72.86 yen from 72.12 yen, 58.83 euro cents from 58.54 cents, 52.26 British pence from 52.19 pence, and 4.5865 Chinese yuan from 4.5618 yuan.

Tags: Market Close