NZ dollar steady despite $12.1b support package

The kiwi was trading at 60.50 US cents at 5pm. Photo / 123RF

The New Zealand dollar was little changed after another roller coaster session in which the government's $12.1 billion economic support package provided only temporary support.

The kiwi was trading at 60.50 US cents at 5pm in Wellington, unchanged from the same time yesterday, having traded in a 1.5 US cent range during the intervening 24 hours.

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Earlier, the domestic currency climbed as high as 60.96 US cents immediately after the government said it would pump $12.1b into the economy to soften the impact of Covid-19, the global pandemic that threatens to tip the world into a protracted recession.

The package is the equivalent of 4 per cent of the economy, and is a mix of wage subsidies, tax breaks, increased welfare support, and targeted spending in health and aviation. It outstrips similar programmes in Australia, the UK and the US.

Kiwibank said the package was bigger than expected, ANZ said it was "bold," Westpac said it was " suitably aggressive and will cushion the blow to parts of the economy." BNZ said the package was the first of many such announcements the government would make to support the economy through the crisis.

"Other factors are hurting markets all around the world and are dominating," said Imre Speizer, currency strategist at Westpac, to explain why the kiwi dollar's euphoria didn't last.

"It will probably out-perform the Aussie over the next day or so and quite correctly – the stimulus here is much bigger than it has been there," Speizer said.

Australia's federal government announced a A$17.6b ($17.8b) stimulus package last week for an economy that is more than six times the size of New Zealand's.

The New Zealand dollar was trading at 98.82 Australian cents at 5pm in Wellington from 98.15 cents at the same time yesterday.

"The chances of a sell-off are greater than the chances of a rally," Speizer said, adding that he expects the local currency to sink below 59 US cents over the next few days.

"The direction from here will depend mostly on equity markets." That front isn't particularly promising since the major Wall Street indices fell about 12 per cent on Monday and New Zealand's own benchmark S&P/NZX 50 Index closed down 0.5 per cent.

Speizer said the results of the next Global Dairy Trade auction, due early tomorrow morning, could be a catalyst to another step down for the kiwi. Dairy futures are pointing to a decline of 9 per cent to 11 per cent in the price of whole milk powder, the key commodity for New Zealand's dairy farmers.

The New Zealand dollar was trading at 49.37 British pence at 5pm, from 49.02 late yesterday. It was at 54.15 euro cents from 54.40, unchanged at 64.68 yen and at 4.2343 Chinese yuan from 4.2359.

The bid price on the two-year swap rate rose to 0.6914 per cent from 0.6166 yesterday while the 10-year swaps climbed to 1.1850 per cent from 0.9525 per cent.