NZ swap rates rise, Kiwi dollar falls as markets factor in likely Donald Trump win

The New Zealand dollar dropped by about US1c and local wholesale interest rates spiked higher as markets adjusted to what is being seen as a likely return to the White House of former US President Donald Trump.

The US dollar strengthened by about 1% against major currencies.

Key 10-year US bonds were sold off, which saw yields go up about 15 basis points at 4.44% in what was described by one trader as “worst-case scenario” for that market. When bond prices fall, yields rise.

By early evening, the Kiwi dollar was down at US59.2c.

Local two-year swaps were up 14 basis points at 3.8%, following on from sell-off in US Treasuries.

Hamish Pepper, fixed income and currency strategist at Harbour Asset Management, said the markets had broadly aligned with a red (Republican) sweep.

”Our market has followed, as it normally does,” Pepper said.

Pepper said it looked like Trump’s tax cut plans would lead to bigger budget deficits “and a steeper debt trajectory seems likely”.

”We would have described that, going into the election, as a worst-case scenario for bond markets,” he said.

”There is the double whammy of tariffs being inflationary and the likely extension of tax cuts, which is positive for growth, which means that the US Federal Reserve is unlikely to be able to ease by as much as the markets have priced in,” he said.

However, the markets appear to have baked in a 25-basis-point cut in the Fed Funds rate on Friday.

Westpac market strategist Imre Speizer said the markets had increased their confidence that Trump would return to the White House.

“It’s about more spending, more pressure on the America’s fiscal accounts, and more borrowing,” Speizer said.

Last month, the Kiwi dropped by more than US4c driven by a strong US dollar and an expectedly resilient US economy.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.