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NZ dollar little changed as market awaits evidence to support 'more hawkish' Fed

Thursday 1st September 2016

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The New Zealand dollar was little changed as traders look ahead to non-farm payroll figures on Friday in the US for evidence that the Federal Reserve is right in appearing to adopt a more apparent willingness to hike interest rates.

The kiwi traded at 72.51 US cents as at 5pm in Wellington, almost unchanged from its levels of late yesterday. The trade-weighted index gained to 77.43 from 77.36.

Federal Reserve chairwoman Janet Yellen and vice chairman Stanley Fischer last week talked up the prospects of interest rate hikes, while still saying any move was data dependent. That's increased focus on Friday's labour market report. US companies added 177,000 jobs in August, according to the ADP private sector payroll report overnight, keeping in place forecasts for the official non-farm payrolls data on Friday of about 180,000 jobs.

"Everyone is sitting on their hands and waiting for non-farm payrolls tomorrow night," said Mitchell McIntyre, senior corporate FX dealer at NZForex. "With the Fed turning slightly more hawkish last week, it appears that people want to be long the US dollar at the moment."

McIntyre said a payrolls number in line with forecasts or better "is probably going to bolster the rate-hike narrative". As a result, "the kiwi is either going to be back up to its highs or back under 71 US cents," he said.

Traders are pricing in just a 12 percent chance that the Reserve Bank will cut interest rates at its next meeting on Sept. 22 but the odds of a 25 basis point cut by the monetary policy statement on Nov. 10 are currently around 77 percent. McIntyre said the Reserve bank, "is too concerned about the strength of the housing market" to cut more than once this year.

The New Zealand dollar fell to 96.13 Australian cents from 96.29 cents late yesterday. It rose to 74.89 yen from 74.65 yen yesterday and rose to 4.8460 yuan from 4.8388 yuan. It gained to 65.04 euro cents from 64.96 cents and slipped to 55.20 British pence from 55.29 pence.

New Zealand's two-year swap rate rose 1 basis point to 1.99 percent and 10-year swaps rose 1 basis point to 2.39 percent.

BusinessDesk.co.nz



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