Kiwi holds gains as Macron win in France stokes investor optimism

The New Zealand dollar held on to yesterday's gains as Emmanuel Macron's emphatic victory in the French presidential election underpinned investor optimism, with Wall Street's fear gauge at a 10-year low.

The kiwi traded at 69.13 US cents as at 8am in Wellington from 69.23 cents yesterday, having recovered from an 11-month low last week. The trade-weighted index was at 75.38 from 75.39 yesterday.

The Chicago Options Board Exchange's Volatility Index, known as the VIX, fell to 9.72, the lowest reading since early 2007, as stocks on Wall Street reached new highs in the wake of Macron's victory over National Front candidate Marine Le Pen in France. Investors have been wary of geopolitical events in the past year which has seen the UK and US public support a growing tide of nationalism with the decision to quit the European Union and elect Donald Trump president, and the election of Macron was seen as returning some certainty for investors.

"With bond and currency volatility measures also at low levels, it does seriously question those who claim the outlook is highly uncertain," Bank of New Zealand currency strategist Jason Wong said in a note. "The market certainly doesn't think so and pricing of vol and risk would actually suggest a more certain outlook than usual prevails."

New Zealand's two-year swap rate edged up half a basis point to 2.33 percent and 10-year swaps rose 1 basis point to 3.43 percent in early trading.

BNZ's Wong said the kiwi was "holding up well" ahead of the Reserve Bank's monetary policy statement on Thursday, which is expected to see governor Graeme Wheeler keep the official cash rate at 1.75 percent and potentially signal rate hikes may come earlier than 2019.

The kiwi traded at 93.49 Australian cents from 93.48 cents yesterday ahead of Australian retail sales figures and the federal budget announcement today.

The local currency rose to 78.23 yen from 78.04 yen yesterday and fell to 4.7727 Chinese yuan from 4.7769 yuan. It edged up to 63.24 euro cents from 63.10 cents yesterday and was almost unchanged at 53.40 British pence from 53.41 pence.

(BusinessDesk)