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NZ dollar falls as ascendant greenback fanned by rate-hike talk

Monday 30th May 2016

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The New Zealand dollar fell after comments by Federal Reserve chair Janet Yellen added to expectations US interest rates will rise sooner rather than later, encouraging the flow of funds back to the greenback from currencies where rates on offer are negative, such as Japan and Europe.

The kiwi fell to 66.84 US cents as at 5pm in Wellington, from 67.44 cents in late Asian trading last week. The trade-weighted index fell to 72.35 from 72.61 in Wellington on Friday.

The US dollar has climbed to a two-month high since Yellen told an audience at Harvard University on Friday that it was appropriate "for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months, such a move would be appropriate." Fed officials have already indicated that the Federal Open Market Committee June 15 meeting is "live" for a rate hike, while next week the Reserve Bank releases its monetary policy statement amid waning expectations of a cut.

"In a short space of time we've seen the Fed change their stance from postponing hikes to all of a sudden putting it on the front burner," said Sheldon Slabbert, sales trader at CMC Markets. "The US is the only economy out of the bigger ones that is able to sustain a stronger currency  at this time. Funds are flowing back to the US and talk of higher rates are helping as well."

Slabbert said he expects the kiwi dollar to retreat to the 65s (US cents) in coming days and doesn't expect it to climb above 68.5 cents before the reserve bank's announcement next week. Ahead of the June 9 statement, US non-farm payrolls for May are due out next Friday, with the market forecasting a relatively modest 160,000 jobs were added this month, matching the April result, which missed forecasts for 202,000. Slabbert said seasonal factors and several major strikes may have dented job creation this month.

The market is pricing a 30 percent chance of a Fed hike in June while the odds of a cut in July are at 65 percent, according to Westpac Banking Corp.

The New Zealand dollar was little changed at 93.34 Australian cents from 93.33 cents in Wellington on Friday and dropped to 60.20 euro cents from 60.30 cents. It declined to 73.84 yen from 74.08 yen and fell to 4.3991 yuan from 4.4255 yuan. The kiwi decreased to 45.73 British pence from 45.97 pence last week. 

The two-year swap rate rose 4 basis points to 2.28 percent and the 10-year swaps rose 4 basis points to 2.90 percent.

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