NZ dollar edges higher amid bond market sell-off

The New Zealand dollar firmed as investors hurt by the recent global bond market sell-off sold profitable positions to cover losses elsewhere.

The kiwi was trading at 64.30 US cents at 5pm in Wellington from 64.19 cents at 8am. The trade-weighted index rose to 71.41 points from 71.33.

"A lot of stuff people have that's been in the money is being unwound," says Tim Kelleher, head of external foreign exchange sales at Commonwealth Bank of Australia. "That's because that bond market sell-off has been quite ugly - 24 basis points in 10 days."

Today, the two-year swap rate edged up to a bid price of 0.9959 per cent from 0.9757 yesterday. Ten-year swaps climbed to 1.3700 per cent from 1.3250. On September 2, the 10-year swaps bid price hit a low of 1.1350 per cent.

US 10-year Treasury bond yields have risen more than 27 basis points since the beginning of the month as trade tensions between the US and China eased.

Kelleher says traders tried to sell the Australian dollar on poor business confidence data yesterday and on poor consumer confidence today. But they had been swamped by hedge funds that had been positioned very short.

"There are definitely buyers on the dips in both currencies," he says.

Today's Australian data showed consumer confidence fell 1.7 per cent with pessimists now outweighing optimists as individuals' concerns about their financial position outweighed signs of a modest recovery in the housing market.

The data prompted National Australia Bank to predict two interest cuts from the Reserve Bank of Australia, taking its cash rate to 0.5 per cent by February next year.

Most economists expect the Reserve Bank of New Zealand to cut its cash rate in November from 1 per cent to 0.75 per cent.

The market is also awaiting the European Central Bank's latest monetary policy decision due on Thursday, expecting both a cut to its already negative deposit rate and for it to either resume money printing or at least promise to do so in the near future.

The bond market rally began on renewed hopes the US and China will soon settle their trade war, soon but fears have grown more recently that the ECB will do less than expected.

The kiwi was trading at 93.51 Australian cents from 93.57, at 52.00 British pence from 51.98, at 58.16 euro cents from 58.14, at 69.24 yen from 69.02 and at 4.5710 Chinese yuan from 4.5660.