Kiwi dollar tumbles against yen

The New Zealand dollar tumbled against the yen as speculation grew that the Republican Party may win not only the White House but also achieve a clean sweep with control of the Senate and the House as well, giving it more power to enact policy than President Barack Obama had.

The kiwi fell to ¥74.66 as at 5pm in Wellington from ¥76.53 late yesterday. The local dollar traded at 73.33USc from 73.24USc yesterday.

The New York Times has put Donald Trump's chances of winning the US presidency at 91% while Nate Silver's FiveThirtyEight.com website puts Trump's chances at 61%% to Clinton on 37%. However, FiveThirtyEight.com also projects an 82% chance that the Republicans will win the Senate while the Democrats are on 18% odds. Meanwhile, bets on a Federal Reserve rate hike next month have collapsed to just 37% from 84% this morning, overshadowing a rate cut expected from the Reserve Bank of New Zealand tomorrow.

"The world didn't end with Brexit and the world won't end with a clean sweep," Robert Rennie, chief currency strategist at Westpac Banking Corp, said. "But the market likes checks and balances and it's not obvious that we have that. There will be a tendency for risk markets to err on the underside of caution."

He said the market is also assessing the implications of a resounding Republican victory on America's relations with China, amid expectations they could become more frosty, which could prove disruptive to economies such as Australia and New Zealand, which count China as their most important market. Reserve Bank governor Graeme Wheeler's policy statement tomorrow may be seen as an added complication that would cause traders to avoid the kiwi, he said.

"But I certainly expect the Aussie to continue to fall toward the lower end of its range," he said.

The trade-weighted index was at 78.66, having climbed as high as 79.03 before poll results started flowing in and from 78.59 late yesterday.

BNZ governor Graeme Wheeler is expected to cut the official cash rate a quarter-point to a new record-low 1.75 percent tomorrow in what may be the last step in its easing cycle, although it may officially keep the prospect of a further cut to try to prevent the kiwi from rallying. The TWI is currently about 4% higher than the average level the bank projected in its August MPS.

The New Zealand dollar fell to 58.68 British pence from 59.10 pence late yesterday and climbed to 96.19Ac from 95.12Ac. It fell to 65.25 euro cents from 66.36 cents and retraced earlier gains against the Chinese yuan to trade at 4.9639 yuan from 4.9646 yuan. Earlier it reached 5.0032 yuan, the first time in about two years it has exceeded 5.0000 yuan.

New Zealand's two-year swap rate fell three  basis points to 2.15% and the ten-year swaps fell seven basis points to 2.84%.

(BusinessDesk)