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Kiwi bounces 1.3% as market jitters fade on Italian politics

Published May 31, 2018

by Danielle Cunningham

The Kiwi opens back in the green as market concern softens over the Italian crisis. News of Italy’s 5-Star party attempting to renew efforts to form a coalition with the League party to avoid sending the country back to the polls led to relief in markets.

US Economy grew slower in the 1st Quarter

The US economy grew at a slower pace at an annual rate of 2.2% for the first quarter, missing expectations of 2.3% and down from 2.9% in the fourth quarter of 2017. US ADP private sector employment numbers also disappointed at 178k new jobs missing expectations of 190K in May and comes ahead of the US non-farm payrolls released this Friday with expectations of 185K new jobs.

Bank of Canada keeps rates on hold but signals more to come this year

The Bank of Canada left rates unchanged at 1.25% however, opens the door for more rate hikes in the year with the next rate hike expected on 11th July. The central bank said in a statement that Canadian inflation has been running close to its 2% target and will likely go higher due to a recent rise in gasoline prices.

An opinion piece from our hedging director Phil Lynch

The NZDUSD is back on the rebound this morning. It is now well settled into a 0.6850 – 0.7000 cent range and this represents fair-value for the kiwi. Currently, we’re testing the top of that fair value level. In my opinion, a kiwi at 0.6950 is fairer value than a kiwi at 0.7250 (like we saw for most of Q1 2018). I base this view mostly on the unstoppable rise of US interest rates (both at a central bank and money market level), whilst NZ interest rates remain firmly flat. However, the adage of the NZDUSD going ‘up the staircase, and down the elevator’ may be back in play here. We’ve just come down the elevator and could be back on the staircase. Targeting above 0.7000 cents seems to be the most popular bet amongst importers and is not a bad play assuming your baseline cover levels are satisfactory.

Key announcements toda

Chinese Manufacturing Numbers
European Inflation Numbers
European Unemployment Numbers
US Consumption and Core PCE