NZ dollar flip flops as investors mull US jobs data, Fed interest rate hikes

Monday 12th January 2015

The New Zealand dollar was volatile over the weekend as investors initially bought the greenback when US jobs growth numbers beat expectations, but then sold it again on concern that the lack of wage inflation may deter the Federal Reserve from hiking interest rates until later in the year.

The kiwi was trading at 78.38 US cents at 8am in Wellington, having dropped as low as 77.88 cents on the US jobs numbers, before rebounding to trade at 78.35 cents at the New York close from 78.34 cents at 5pm in Wellington on Friday. The trade-weighted index slipped to 79.79 from 79.98 on Friday.

The US non-farm payrolls report, which is closely watched by the Fed, showed the world's largest economy added 252,000 new jobs in December, beating the 240,000 expected as the unemployment rate fell to 5.6 percent, the lowest level since June 2008. Still, average hourly earnings dropped 0.2 percent, the first decline in more than two years and the largest ever drop. That prompted speculation the Fed will wait until at least the middle of the year before hiking rates.

"Currency markets liquidated US dollar positions, despite solid payrolls," ANZ Bank New Zealand senior economist Sharon Zollner and senior FX strategist Sam Tuck said in a note. "The lack of wage growth remains the sticking point. "

US Federal Reserve Bank of Atlanta president Dennis Lockhart, who votes on monetary policy this year, said the strong jobs report was no reason to speed up the timing of an interest rate increase that he sees occurring in the middle of the year or later.

“If the committee is to err on the side of being a little late as viewed by history writers or maybe a little early, I prefer to take the risk of being a little bit late,” Lockhart told Bloomberg News.

ANZ expects the kiwi to trade between 78 US cents and 78.80 cents today.

The New Zealand dollar fell to 95.49 Australian cents from 96.22 cents on Friday, ahead of reports on ANZ job advertisements and home loans data.

The kiwi slipped to 92.81 yen from 93.65 yen on Friday. Japanese banks are closed today in observance of Coming of Age Day.

The local currency slipped to 66.19 euro cents from 66.39 cents on Friday, and 51.67 British pence from 51.92 pence.

BusinessDesk.co.nz

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