NZ dollar heads for 0.6% weekly gain as gradual rise in US rates take sheen off greenback

Friday 20th November 2015

The New Zealand dollar is heading for a 0.6 percent gain this week as the prospect of US interest rates grinding higher at a slower pace than expected took the sheen off a greenback that reached an eight-month high.

The kiwi was at 65.85 US cents at 5pm in Wellington from 65.44 cents on Friday in New York last week. It was at 65.92 US cents at 8am and up from 65.31 cents yesterday. The trade-weighted index increased to 71.36 from 71.15 yesterday, and is heading for a 0.1 percent increase this week.

A BusinessDesk survey of nine currency analysts predicted the kiwi would trade between 63.50 US cents and 66.80 cents this week. Six expected it to drop, two said it would rise slightly, and one picked it to remain largely unchanged.

The local currency dropped against the greenback through the start of the week as the US dollar remained underpinned by growing bets the Federal Reserve will raise interest rates at next month's policy review and as global dairy prices fell for a third time at Fonterra Cooperative Group's fortnightly GlobalDairyTrade auctions. However, it rallied yesterday after minutes to the Federal Open Market Committee's October meeting didn't offer compelling evidence the world's biggest central bank will hike rates aggressively, disappointing some traders who wanted a harder line and prompting them to trim their bets on further appreciation in the US dollar.

"The Fed came out yesterday and said 'hey, we're going to raise rates, but it's going to be at a glacial pace' so the market said 'great, we're going to get a low cost of funding for longer' and risk assets rallied," said Michael Johnston, senior trader at HiFX in Auckland. "We still expect the kiwi to head lower come the end of the year."

The Reserve Bank of New Zealand will review the official cash rate on Dec. 10, a week before the Fed's meeting, and OMF's Johnston said he expects governor Graeme Wheeler will cut rates next month to shore up the economy against extended weakness in dairy prices rather than wait until the next full monetary policy statement in March.

New Zealand's two-year swap rate slipped one basis point to 2.72 percent at 5pm in Wellington, and 10-year swaps decreased one basis point to 2.6 percent.

Traders will be closely watching the November US non-farm payrolls report early next month, which OMF's Johnston said will be a key piece of data for the Fed on whether it will start raising rates in December.

The kiwi rose to 61.44 euro cents from 61.01 cents yesterday ahead of a speech by European Central Bank president Mario Draghi at the European Banking Congress in Frankfurt.

The local currency gained to 43.07 British pence from 42.73 pence yesterday, and climbed to 80.94 yen from 80.45 yen. It increased to 91.45 Australian cents from 91.19 cents yesterday, and advanced to 4.2016 Chinese yuan from 4.1655 yuan.

BusinessDesk.co.nz

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