NZ dollar falls after Fed kicks off tightening cycle with quarter-point hike

Thursday 17th December 2015

The New Zealand dollar fell after the Federal Reserve began its well-signalled plan to start raising interest rates gradually over the coming years, ending the near-zero rate policy that's been in place since December 2008.

The kiwi dropped to 67.23 US cents at 5pm in Wellington from 67.79 cents immediately before the Fed release and 67.65 cents yesterday. The trade-weighted index fell to 73.40 from 73.55 yesterday.

The Federal Open Market Committee raised the federal funds rate a quarter point to between 0.25-and-0.5 percent, and kept projections for another 1 percentage point of increases next year. Fed chair Janet Yellen has been preparing the market for the tightening cycle, and told a press conference in Washington on Wednesday that the central bank didn't want to miss the current opportunity to move, and be forced to raise more aggressively later.

"There was not much reaction, so in other words it's a job well done by Janet Yellen and something many central bankers could learn from - how to craft a statement and avoid surprises," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. The greenback typically falls after a tightening cycle starts with traders pricing in future movements, so "the kiwi will remain high until maybe late January when the US dollar starts picking up again."

The kiwi initially rose after government data today showed New Zealand's economy grew 0.9 percent in the September quarter as manufacturing recovered from a mid-year slump and an influx of tourists stoked services sector activity.

New Zealand's two-year swap rate fell five basis points to 2.8 percent at 5pm in Wellington, and 10-year swaps were unchanged at 3.72 percent.

The kiwi was little changed at 93.77 Australian cents from 93.78 cents yesterday, and dropped to 4.3568 Chinese yuan from 4.3717 yuan. It was little changed at 83.38 yen from 82.35 yen yesterday, and increased to 62.02 euro cents from 61.84 cents. It traded at 44.99 British pence from 44.94 pence yesterday.

BusinessDesk.co.nz

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