NZ dollar falls as upbeat Fed drives greenback higher as rate hikes loom

Thursday 30th July 2015

The New Zealand dollar fell after the Federal Reserve noted a strengthening US labour market and improvement in the housing market, factors that may herald a lift in US interest rates from near zero. The greenback was broadly stronger after the statement.

The kiwi dollar traded at 66.62 US cents as at 8am in Wellington, from 66.98 cents late yesterday. The trade-weighted index fell to 71.06 from 71.31.

The Dollar Index, which tracks the greenback against a basket of major currencies, rose as high as 97.254, the highest since Monday, after the Federal Open Market Committee said the US labour market had "continued to improve, with solid job gains and declining unemployment.” It would tighten policy when it sees “some further improvement." The comments were taken as a sign the Fed is on track to raise interest rates later this year.

The Fed "on balance said little to change market perceptions of 50-50 odds on the first hike occurring in September," ANZ Bank senior economist Sharon Zollner and senior FX strategist Sam Tuck said in a note.

The market "continues to digest" comments from Reserve Bank governor Graeme Wheeler yesterday that further easing is likely in New Zealand, although not to the extent some economists had been predicting, they said.

Wheeler also said yesterday that the kiwi dollar is too high given a deteriorating outlook for New Zealand's external accounts and he expected it to decline. Still, the economy is growing at 2.5 percent, helped by migration, construction and the services sector, he said. Wheeler also expects annual inflation to return to near the mid-point of the bank's 1-3 percent band in the first half of 2016.

The kiwi fell to 91.38 Australian cents from 91.53 cents. It was little changed at 82.57 yen from 82.68 yen and traded little changed at 60.61 euro cents. The currency fell to 42.71 British pence from 42.92 pence.

BusinessDesk.co.nz

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