US data blows kiwi dollar TWI high

New Zealand Herald Photograph by Brett Phibbs

The New Zealand dollar advanced to an all-time high on its trade weighted index (TWI) after disappointing growth data eroded support for the US dollar but dealers are wondering if the Reserve Bank of New Zealand will move to knock the kiwi lower.

The kiwi was 81.42 on its trade weighted index at 5pm, up from 80.80 yesterday and surpassing the 81.29 record it reached earlier this month. It was at 87.56 US cents at 5pm in Wellington from 87.28 US cents at 8am and 86.78 cents at 5pm yesterday.

The US dollar fell after a report showed the US economy shrank at a 2.9 per cent annual rate in the first quarter, instead of the 1 per cent pace reported last month, the largest revision since the series began in 1976. Economists had expected a decline of about 1.8 per cent. Meanwhile, a separate report showed orders for long-lasting US manufactured goods unexpectedly declined 1 per cent last month, the first drop in three months.

"Overall we've seen a general weakness in the US dollar stir buying in the kiwi. Investors are feeling a little bit more confident that the US aren't going to start raising interest rates as early as some were expecting, which was still next year," said Dan Bell, head of corporate sales at HiFX in Auckland.

Bell said the kiwi had broken through a key level at 87.50 US cents. The governor of the RBNZ had talked about the potential for intervention about that level about a month ago. The Reserve Bank had foreign currency intervention capacity of $8.36 billion at the end of April, according to its latest data.

"In a way he's prepared the market for that so I think if it was to keep going at the pace it is at the moment it wouldn't surprise me to see the RBNZ come out with some comments or potentially start selling into it," he said. "They'll be watching it closely because it is starting to look concerning. We're only a cent off post-float highs around 88.50 cents," he said.

Tonight, traders will be eyeing an inflation report in the US which is closely watched by the Federal Reserve. The core PCE deflator is expected to rise to a 1.6 per cent annual pace in May, from a previous pace of 1.4 per cent. If it rises a lot, the US dollar will have support.

The New Zealand dollar advanced to 93.16 Australian cents from 92.68 cents yesterday, gained to 64.25 euro cents from 63.76 cents, rose to 51.56 British pence from 51.12 pence and jumped to 89.12 yen from 88.42 yen.