NZ dollar headed for 0.8% weekly gain as fears of trade war ease

The kiwi traded at 65.85 US cents at 5pm. Photo / 123RF

The New Zealand dollar is headed for a 0.8 per cent weekly gain after markets were cheered by news that the US and China may return to the negotiating table.

The kiwi traded at 65.85 US cents at 5pm in Wellington versus 65.69 cents at 8am in Wellington and 65.53 cents yesterday. It was at 65.33 last Friday in New York. The trade-weighted index was at 71.42 versus 71.18 late yesterday.

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Markets were cheered by news that US Treasury Secretary Steven Mnuchin invited his Chinese counterparts back to the table even though President Donald Trump tempered market expectations, tweeting the US is "under no pressure to make a deal with China."

Trade tensions between the two nations have weighed on currencies like the kiwi, given New Zealand's dependence on exports.

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, said the risk is that the kiwi continues to "squeeze (higher) given the positioning."

He noted that the market is quite long US dollars right now, which could mean the kiwi gets a lift if that positioning reverses at all. Long positioning is when a trader bets an asset will lift in value.

Overall, the "trade stuff seems slightly more positive," he said. Looking ahead, investors will be watching for US retail sales data, industrial production and the September University of Michigan consumer sentiment report.

Domestically the next big event is the second quarter gross domestic product data, due next Thursday, which may be stronger than the central bank anticipates.

Second quarter gross domestic product grew 0.8 per cent for an annual gain of 2.5 per cent, according to a Bloomberg survey of 16 economists. The Reserve Bank forecast 0.5 per cent quarterly growth.

A stronger number should calm expectations for a possible rate cut this year, which will help shore up the kiwi.

The local currency rose to 4.5124 Chinese yuan from 4.4868 yuan yesterday. It increased to 91.50 Australian cents from 91.15 cents and was at 56.30 euro cents from 56.33 cents yesterday. It traded at 50.19 British pence from 50.23 pence. The kiwi rose to 73.64 yen from 73.03 yen.

New Zealand's two-year swap rate was unchanged at 1.97 per cent while 10-year swaps rose 1 basis point to 2.82 per cent.