NZD strengthens on draft Brexit deal

The New Zealand dollar strengthened against its key counterparts after UK Prime Minister Theresa May secured a draft deal on Brexit.

The kiwi traded at 52.28 British pence in Wellington at 8:45am from 52.15 pence Wednesday, and at 60.00 euro cents from 59.91 euro cents.

It was at 67.98 US cents from 67.78 US cents late Wednesday. The trade-weighted index was at 74.36 from 73.97.

May secured Cabinet approval for her Brexit planned after five hours of talks. The 585-page deal, which lays the path for a more orderly exit from March, still requires the support of Parliament.

“Failure to pass the deal will raise the prospects of a disorderly Brexit, a general election and also a second referendum. GBP would sink,” said Doug Steel, senior economist at Bank of New Zealand.

“Alternatively, passing the deal and GBP would gain sufficient support.” 

Investor focus will now turn to comments from Federal Reserve Chair Jerome Powell to gauge the outlook for the pace of US interest rate increases, and an Australian labour force report for October slated for release later today.

“Data wise, Australian employment will have the most interest locally with US retail sales holding sway overnight,” Steel said.

The Fed’s Powell is set to speak at noon New Zealand time. Earlier, a Labour Department report showed the US consumer price index increased 0.3 percent in October, following a 0.1 percent increase in September. In the 12 months through October, the CPI climbed 2.5 percent, accelerating from a 2.3 percent gain in the previous month.

"The Fed is still likely to continue hiking interest rates once a quarter in the near term, with the next move coming in December," Andrew Hunter, US economist at Capital Economics, said in a note. “But with little sign that a more marked acceleration in inflation lies ahead, Fed officials won’t hesitate to back away from further tightening if economic growth slows." 

"With the fiscal boost now fading and rising interest rates starting to take their toll on rate-sensitive activity, we expect that to happen by the middle of next year, sooner than most currently anticipate,” Hunter said. 

The kiwi traded at 93.91 Australian cents from 93.70 cents Wednesday.

“For today, the performance of the cross will likely hinge on Australia’s employment report where the market anticipates the unemployment rate to tick marginally higher following its previous dip to 5.0 percent,” BNZ’s Steel said. 

The New Zealand dollar was at 4.7239 Chinese yuan from 4.6913 yuan and at 77.14 yen from 76.97 yen.

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