NZ dollar ends first quarter weaker than RBNZ forecast on TWI basis

The New Zealand dollar is weaker than the central bank forecast on a trade-weighted basis at the end of the first quarter, although it has largely held its ground against the greenback, benefiting from disappointment over US President Donald Trump's failure to deliver on campaign pledges.

In its February monetary policy statement the central bank forecast the trade-weighted index would average 79 in the March quarter. It was trading at 75.88 as at 5pm in Wellington versus 77.42 at the beginning of the quarter.

One of the biggest moves over the quarter has been the decline against the Australian dollar. As at 5 pm it was trading at 91.40 Australian cents versus 95.62 cents at the beginning of the quarter. The Aussie has benefited from stronger prices of metals and iron ore, and an upbeat view of the Australian economy from its central bank.

While it has staged a bit of a comeback in recent weeks, Westpac Banking Corp strategist Imre Speizer said the trend is for the Aussie to go higher, in particular given rising hard commodity prices. Dairy prices, on the other hand, appear to be waning, which has weighed on the kiwi.

Against the greenback, however, it was trading at 69.86 US cents versus 70.26 cents late yesterday and 69.34 cents at the beginning of the quarter. While it ended the quarter virtually unchanged, it traded as high as 73.74 cents on Feb. 7 after weak data in the US. The US dollar also suffered when US President Trump failed to repeal the so-called Obamacare act, as markets began to speculate he may have trouble with future legislation around taxes and border control.

Speizer said, however, the market pushed the US dollar too far and it is now rebounding, a trend he expects will continue. Looking ahead, he said the next major event for Trump will be in late April as Congress needs to pass the appropriations bills by April 28 to keep the government open.

In the short term, he said the personal consumption expenditure deflator index, which measures the prices paid by consumers for goods and services, is due out in the US later in the global trading day and is one of the Federal Reserve's preferred measures. He also pointed to a raft of Fed speakers that could be market moving.

On the day, the kiwi rose to 65.44 euro cents from 65.33 cents. It fell to 55.95 British pence from 56.44 pence and rose to 78.29 yen from 78.14 yen. It fell to 4.8162 yuan from 4.8435 yuan.

The two-year swap rate rose 1 basis point to 2.31 percent while 10-year swaps rose 5 basis points to 3.44 percent.

(BusinessDesk)