NZ dollar gains on optimism over a potential Covid-19 vaccine

The kiwi was trading at 60.45 US cents at 5pm in Wellington from 59.50 cents at the same time yesterday. Photo / 123RF

The New Zealand dollar continued to climb as a wave of optimism about the prospects for a Covid-19 vaccine swept the financial world.

The kiwi was trading at 60.45 US cents at 5pm in Wellington from 59.50 cents at the same time yesterday. The trade-weighted index was at 68.32 from 67.55.

US biotech company Moderna reported that a small first study of its experimental vaccine designed to look at its safety had resulted in no major concerns and also showed the vaccine can create an immune system response.

Despite the very early stage of testing its vaccine, Moderna shares surged as much as 30 percent while the Dow Jones Index rose nearly 4 percent. As is usual when risk appetite sharpens, the kiwi went along for the ride.

Mike Shirley, a dealer at Kiwibank, said it wasn't a complete switch from safe havens to riskier assets – he noted that the price of gold fell a little but soon began to recover.

During the domestic session, the currency had rallied into the producer prices data for the March quarter but then fell a little after the data was published.

It showed prices paid by producers, known as input prices, fell 0.3 percent in the March quarter, but margins improved, with prices received by producers – output prices – rising 0.1 percent.

A key contributor to the quarter-on-quarter decline in input prices were prices associated with electricity generation. Across the electricity and gas supply industry, prices were down 4.9 percent on the quarter.

Then Reuters published a story based on an interview with Reserve Bank deputy governor Geoff Bascand in which he said the central bank isn't trying to control the currency and that the RBNZ may extend its money printing programme – it raised that from $33 billion to $60 billion last week.

Bascand also said the economy is expected to contract by a massive 21.8 percent this quarter.

Shirley said the currency had rallied a little on Bascand's comments but then gave that back over the following hour and now is "just waiting for the next big thing."

What the next big thing will be could be anything from more news on the coronavirus front or further escalation of the US-China trade tensions, he said.

Unemployment data in the UK is due out later today but is unlikely to have an impact on the kiwi, Shirley said.

The New Zealand dollar was trading at 92.63 Australian cents at 5pm from 92.39 cents at the same time yesterday. It was at 49.53 British pence from 49.18 pence, at 55.41 euro cents from 54.98 cents, at 64.91 yen from 63.74 yen and at 4.2967 Chinese yuan from 4.2302 yuan.

The bid price on the two-year swap rate closed at 0.1275 percent from 0.0975 percent yesterday while 10-year swaps were at 0.5925 percent from 0.5775 percent.