Kiwi dollar hangs onto gains after RBNZ boost

The New Zealand dollar held onto gains made after the Reserve Bank began to tighten its monetary policy settings yesterday.

Thursday, July 15th 2021, 7:00PM

by BusinessDesk

BNZ interest rate strategist Nick Smyth said the market interpreted the central bank’s move as “opening the door” to an official cash rate hike next month.

Investors are now pricing in approximately a 70% chance of an August increase, he said.

This has resulted in the NZ dollar being a “clear out-performer in the currency market”, up as much as 1% from yesterday against the US dollar and briefly touching 94 Australian cents for the first time since early June.

The kiwi dollar was trading at 70.13 US cents at 3pm in Wellington, up from 69.90 cents yesterday.

The trade-weighted index was at 74.21 at 3pm, from 74.07 yesterday. The kiwi traded at 93.95 Australian cents from 93.73 cents, 77.08 yen from 77.24 yen, 5930 euro cents from 5933 cents, 5071 British pence from 5059 pence, and 4.5346 Chinese yuan from 4.5263 yuan.

Chief executive of Fat Prophets Angus Geddes said there was significant resistance at 75 US cents – last seen in 2018 – but predicted traders would be pushing the currency in that direction.

“A retest of that level is probable in the months ahead, given the central bank’s decision ‘to go early’ and lift rates well ahead of the rest of the world,” he said.

The NZ share market continued to slide with the S&P/NZX 50 Index down 48.52 points, or 0.4%, to 12,671.16 today. Turnover was $160 million.

A recent research note from Harbour Asset Management said the share market had been in a “Goldilocks environment” where economic growth was strong and central bank monetary policy settings were supportive

“We may be entering a macro-economic backdrop which is less supportive, with a peak in the rate of economic growth and a peak in financial liquidity support,” it warned.

Equity markets in Europe and the US were marginally higher overnight but Australian shares fell today as the covid outbreak worsened and more restrictions looked likely.

Dual-listed A2 Milk Company led the decline on the local market, falling 3% to $7.35, after a strong run that saw the stock recover almost 20% in 10 days. Synlait Milk climbed 0.5% to $3.90.

Logistics company Mainfreight had the day’s biggest gain, up 2.1% at $77.80.

Eroad shares climbed 3% to $6.33 after the company completed a $64m placement, at $5.58 per share, to fund an acquisition.

Radius Residential Care was up 2.3% at 90 cents, having raised $30m, at 52 cents per share, on Friday.

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