NZ dollar falls on Trump volatility

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The New Zealand dollar fell as the election of Donald Trump to the White House stoked volatility across financial markets and the Reserve Bank left the door open to intervening in foreign exchange markets as a means to lean against a persistently strong currency.

The kiwi traded at 72.66 US cents at 5pm in Wellington from 72.72 cents at 8am, and down from 73.33 yesterday. The trade-weighted index fell to 78.21 from 78.66 yesterday.

The greenback recovered from an initial sell-off as investors decided Trump's expansionary fiscal policies would likely drive up interest rates in the world's biggest economy, triggering a 33-basis point swing in US 10-year Treasuries, which are near a 10-month high. New Zealand's 10-year swap rate jumped 25 basis points to 3.09 per cent, the highest level since March, while two-year swaps were up 5 basis points to 2.2 per cent.

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"There was massive volatility in currency markets, US bond markets, and US interest rates shot up quite a bit which on a medium-term basis makes the US dollar a lot more attractive and may help cap any rally in the kiwi/US," said Michael Johnston, senior dealer at HiFX in Auckland.

New Zealand's currency spiked up after the Reserve Bank cut the official cash rate to 1.75 per cent as expected, and signalled the end to the easing cycle, however that gain was short-lived after governor Graeme Wheeler said he had an "open mind" to intervening, while declining to say whether conditions were ripe for doing so.

"Today's RBNZ was pretty much as expected - they cut rates, which if they didn't do would have sent the kiwi off to the moon" and when Wheeler said he was open to intervention, "the currency dropped straight away", Johnston said.

He expects the Thanksgiving Holiday in the US on Nov. 24 would be an opportune time for the Reserve Bank to intervene in the near-term with fewer people in the market meaning it would "get a lot more bang for its buck" and have a noticeable impact.

The local currency jumped to 76.40 yen from 74.66 yen yesterday, recovering from a slump when investors rushed to safe-haven assets when it became likely Trump would win the election. It fell to 94.69 Australian cents from 96.19 cents yesterday and dropped to 4.9306 Chinese yuan from 4.9639 yuan. The kiwi declined to 58.45 British pence from 58.68 pence yesterday, and increased to 66.32 euro cents from 65.25 cents.