NZ dollar falls as US dollar strengthens ahead of Federal Reserve meeting

Tuesday 15th March 2016

The New Zealand dollar fell as the US dollar strengthened ahead of the Federal Reserve's interest rate decision this week.

The kiwi slid to 66.63 US cents at 8am in Wellington, from 67.48 cents at 5pm yesterday. The trade-weighted index declined to 71.30 from 71.94 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, advanced as traders position themselves leading in to the Federal Reserve's two-day meeting which starts Tuesday in Washington. With the market pricing in only a small chance that the Fed will raise rates at this meeting, the focus will be on any clues as to the future path for rate increases.

"The US dollar broadly firmed overnight as sentiment improved ahead of the Fed," ANZ Bank New Zealand senior economist Mark Smith and senior FX strategist Sam Tuck said in a note. "The main game in town this week remains the Fed and while the probability of a March hike is sitting at just 6 percent, (Fed chair Janet) Yellen is expected to keep open the possibility of rate hikes in the coming months if the data stays resilient.

"The focus will be on inflation given that US core inflation looks to have troughed and is on the way up, making Fed officials more confident that annual inflation is on track to rise gradually toward its 2 percent objective. With a large disconnect between the three to four hikes signalled in the December ‘dot plots’ versus the 35bp priced in for 2016, volatility is a given."

ANZ expects the kiwi to trade between 66.10 US cents and 67.30 cents today.

Tonight, the US releases February retail sales data and the New York Empire state manufacturing survey for March.

In New Zealand today, Reserve Bank governor Graeme Wheeler was due to give an off-the-record speech to a breakfast function hosted by the Institute of Directors in Auckland.

Tonight, the focus will turn to the fortnightly GlobalDairyTrade auction, where prices for New Zealand's largest export commodity are expected to gain 2 percent.

The New Zealand dollar slipped to 88.75 Australian cents from 88.95 cents yesterday. Australia has a report on consumer confidence due for release today, and the Reserve Bank of Australia is scheduled to publish the minutes to its last meeting.

The kiwi sank to 75.82 yen from 76.81 yen yesterday ahead of the Bank of Japan policy review today. While no change is expected, traders will be looking for signs the BoJ is concerned about the high value of the yen, and signals more policy easing may be coming.

The local currency dropped to 4.3299 yuan from 4.3816 yuan yesterday. In China today, the annual session of the National People’s Congress is due to conclude, with Chinese Premier Li Keqiang expected to hold a press conference.

The kiwi dropped to 60.04 euro cents from 60.48 cents yesterday, and slid to 46.59 British pence from 46.92 pence.

BusinessDesk.co.nz

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