NZD hits highest level against pound in decades

The kiwi has recovered after selling off in the wake of the Reserve Bank's reiteration last week. Photo / iStock

The New Zealand dollar rose to its highest level against the British pound in decades as the governing Conservative party said it would focus on controlling immigration, rather than securing tariff-free access to European markets in its negotiations to leave the trading bloc.

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The kiwi traded at 56.82 pence at 5pm in Wellington, from 56.52 pence at 8am and 56.10 pence yesterday. UK Prime Minister Theresa May on Sunday said negotiations to secure Britain's exit from the European Union would begin at the end of March. The British finance minister, Philip Hammond, has also scrapped his predecessor George Osborne's target of a surplus by 2020. Britain has been running a deficit since the financial crisis erupted in 2008. The trade-weighted index rose to 77.42 from 77.14 yesterday.

The kiwi's previous post-brexit high against the British pound was 56.37 pence on July 8.

Nick Tvedt, senior corporate FX dealer at NZForex in Auckland, said the kiwi's spike against sterling was "follow through from what we saw at the weekend, these comments from Theresa May that Article 50 would be invoked which dashed suggestions Brexit could be pushed out until as late as 2019 perhaps."

The new Australian Reserve Bank governor, Philip Lowe, announced his first policy review at 4:30pm Wellington time, maintaining the target cash rate at 1.5 per cent. In a slightly more detailed commentary that supplied by his predecessor, Glenn Stevens, Lowe said that "household consumption has been growing at a reasonable pace, but appears to have slowed a little recently."

He added that "turnover in the housing market has declined ... growth in rents is the slowest for some decades."

The kiwi edged up to 95.07 Australian cents from 94.97 cents prior to the announcement, and 94.94 cents yesterday.

Tvedt said the market moves "were small for a post RBA move, there just weren't any flows in the cross. The Aussie is a bit more offered on the announcement, but really Lowe's comments are very specific to Australia."

The kiwi rose to 72.86 US cents from 72.65 yesterday. The local currency will be influenced by the latest GlobalDairyTrade auction due to take place overnight, with some market participants expecting whole milk powder to be flat at best.

The kiwi was little changed against at 4.8600 Chinese yuan from 4.8453 yuan yesterday. It gained against the euro, rising to 65.08 cents from 64.65 cents and was up against the Japanese yen, reaching 74.52 yen from 73.64.

The two-year swap rate rose three basis points to 2 per cent, and ten-year swaps rose six basis points to 2.5 per cent.