New Zealand Dollar Boosted as Kiwi Bonds Enter Key Global Index
- Written by: Gary Howes
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Image © Adobe Stock
The New Zealand Dollar was boosted at the start of the new month on strong demand for New Zealand Government bonds, following their inclusion in a major global index.
New Zealand Government Bonds (NZGBs) were admitted to the FTSE-Russel World Government Bond Index at the turn of the month and local dealers reported strong demand, with currency analysts saying this had contributed to New Zealand Dollar outperformance.
"Flows related to this have likely been a driver behind the NZD being higher on all the key crosses," says analyst Tapas Strickland at NAB.
Above: GBP/NZD at daily intervals showing NZD outperformance at the turn of the month. To better time your payment requirements, consider setting a free FX rate alert here.
It was announced in April that New Zealand government bonds would be included in the FTSE-Russel World Government Bond Index after meeting all the eligibility criteria for inclusion.
The bonds entered the index on October 31 and local dealer BNZ estimates around NZ$2BN of inflows would be booked in the first month of NZGBs inclusion in the index.
This is expected to rise to around NZ$4BN over the first three months.
"The NZD getting an added kicker as NZGBs enter the FTSE-Russell World Government Bond Index. This sees the NZD higher on all the key crosses," says Jason Wong Senior Markets Strategist at BNZ.
The Pound to New Zealand Dollar exchange rate (GBP/NZD) dropped 1.30% percent on October 31 amidst solid demand for the New Zealand Dollar, ending the month at 1.9708, having started the day at 2.00.
The currency pair traded heavily again on November 01 with the pair falling further to 1.9668, taking NZD payment rates at high-street banks to around 1.9124 and rates at specialist providers to around 1.9620.
Against the U.S. Dollar, the Kiwi was as high as 0.59 on November 01, its highest since September.
"The NZD has been well supported through October overall following wider NZ-global rate spreads after the more hawkish RBNZ update earlier in October, and some recovery from an oversold level being two key driving forces," says Wong.
New Zealand bonds are projected to comprise 0.19% of the FTSE WGBI on a market value-weighted basis, according to a news release from FTSE-Russel.
Looking beyond domestic factors, developments in China, New Zealand's premier trading partner, have also proven supportive.
Chinese stocks were higher and the yuan strengthened as speculation mounted that policymakers are making preparations to gradually exit its 'Zero Covid' policy stance.
The New Zealand economy is highly exposed to China and the recent slump in economic activity in the world's second-largest economy has had negative implications for New Zealand and its currency.
Bloomberg reports unverified social media posts circulated online that a committee was being formed to assess scenarios on how to exit Covid Zero.
Analysts credited this talk with strength in commodity-linked currencies, such as the Aussie and Kiwi Dollars.