Dollar soars as investors price out negative cash rate

The New Zealand dollar leapt to a 20-month high as the market reversed its bet the Reserve Bank will cut the official cash rate into negative territory.

Wednesday, November 11th 2020, 6:34PM

by BusinessDesk

The kiwi dollar had been trading at 68.30 US cents prior to the RBNZ’s policy statement at 2pm this afternoon, but surged as high as 69.03 cents as investors walked back a prediction the central bank would cut the OCR down the track. At 5pm it was trading at 68.90 US cents.

“Given the recent resilience of the domestic economy, we assess that the funding for lending scheme will now prove to be enough future stimulus, and that the RBNZ will keep the official cash rate at 0.25 percent,” said ASB economist Nick Tuffley in a note.

This would leave interest rates in NZ above current levels in Australia, where the RBA has cut the cash rate to 0.1 percent. This gap caused the kiwi to climb against its trans-Tasman counterpart, trading at 94.21 Australian cents at 5pm, up from around 93.75 cents shortly before the news.

Tim Kelleher, head of institutional foreign exchange sales at Commonwealth Bank of Australia, said the leading banks changing their rate cut forecasts prompted a selloff in the bond market which had pushed the currency higher.

“The market has completely un-priced negative rates in New Zealand and we are seeing a strong reaction in currency,” he said.

“We've already seen a bond market selloff after that vaccine news came out yesterday, so there was a bit of pressure on the bond market to start with.”

The trade-weighted index was at 72.98 at 5pm, from 72.44 yesterday. The kiwi traded at 72.42 yen from 71.62 yen, 58.25 euro cents from 57.67 cents, 51.92 British pence from 51.76 pence, and 4.5427 Chinese yuan from 4.5116 yuan.

The share market, which saw a historic collapse amid the outbreak of covid-19 in March, has been propelled higher by falling interest rates and central bank stimulus.

However, the prospect of less stimulus and somewhat higher rates only took a little, if any, steam out the share market with investors still processing the news an effective vaccine had been developed.

The S&P/NZX 50 Index rose 53.24 points, or 0.4 percent, to 12,665.63. Within the index, 23 stocks rose, 25 fell and two were unchanged. Turnover was $196.3 million.

The index opened stronger, but eased off its highs throughout the day.

Sky Network Television led the market higher, rising 6.7 percent to 16 cents after it raised its revenue guidance to between $680 million and $710 million due to growth in direct satellite customers and lower year-to-date annualised churn.

It was followed by Z Energy which rose 2.6 percent to $3.18, as it continues to rally on the prospect of a widespread vaccination resulting in increased oil consumption.

Shares in global logistics company Mainfreight briefly hit $60 after the company gave its half-year report promising continued revenue growth in the second half. However, the shares reversed and closed the day down 0.8 percent at $57.75.

Synlait Milk posted the day’s biggest loss, falling 8.9 percent to $5.40, as it came off a trading halt after yesterday announcing it would raise $200 million through a share purchase plan and an underwritten placement at a fixed price of $5.10 per share. The milk processor also lowered its earnings outlook to be “to be significantly lower” than last year.

Fisher & Paykel Healthcare saw a bounce after being sold down on vaccine news yesterday, the manufacturer climbed 1.9 percent to $33.06 today.

Trading in Plexure shares was halted this morning at $1.55 after the firm announced it will seek a secondary on the ASX and undertake an underwritten A$30 million private placement to Australian and New Zealand institutions and other investors.

On the ASX, Kiwi-firm Xero saw its shares jump 6.4 percent to a record A$122.43 after it was added to the latest MSCI Global Standard Indexes, bringing in a flood of buying from passive index funds.

Tags: Market Close