Dollar extends gain against Aussie; Trump slump weighs on Asia

The  New Zealand dollar gained against the Australian dollar as the interest rate differential between the countries looks set to persist and as investors were unnerved by the US White House's inability to deliver on its plans. 

The kiwi traded at 91.78 Australian cents as at 5pm in Wellington, versus 91.40 Australian cents as at 8am and 91.37 cents yesterday.  It was at 70.30 US cents from 70.47 cents yesterday. 

Stocks across Asia fell, following Wall Street's lead, as optimism about US President Donald Trump's ability to overhaul tax policy waned. Trump's expansionary fiscal plans at the same time the Federal Reserve looks hikes interest rates have been driving support for the greenback in recent months. 

"We had a slightly risk off scenario overnight with the equity markets falling and that's followed through in Asia as markets become a little bit nervous around the ability of the Trump administration to deliver its policies," said OMF private client advisor Stuart Ive. "We don't know what the outcome of all things Trump is going to entail." 

Among other things, it looks like his bid to amend the Affordable Healthcare Act, known as Obamacare, freeing up funds for the White House to embark on tax reform may be "somewhat floundering," said Ive. 

Meanwhile, the kiwi continued to outperform against the Aussie after the RBA signalled its "pretty much on the fence" at 1.5 percent as they try and balance their economy, between the over-heated housing market, high debt levels and low inflation, said Ive. "It looks like they are going nowhere fast." With New Zealand's Reserve Bank expected to keep the official cash rate at 1.75 percent when it reviews policy tomorrow, that means the rate differential will stay in the kiwi's favour.  

The better-than-expected overnight milk auction may have also helped support the local currency. Whole milk powder prices rose 2.9 percent to US$2,855 a tonne at the GlobalDairyTrade auction. Analysts had been expecting a decline based on pricing in the futures market. 

Ive said barring any Trump-related news in the next 12 hours, investors will be focused on the Reserve Bank's rate decision and statement tomorrow, which is expected to reiterate that monetary policy will remain accommodative. 

The kiwi fell to 78.48 yen from 79.45 yen yesterday and dropped to 4.8394 Chinese yuan from 4.8673 yuan. It declined to 65.11 euro cents from 65.51 cents and decreased to 56.36 British pence from 56.98 pence. The trade-weighted index was at 76.25 from 76.46 yesterday. 

The two-year swap rate rose 1 basis point to 2.28 while the 10-year swaps fell 4 basis point to 3.41 percent.

(BusinessDesk)