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NZ dollar weakens after Fed minutes show some officials favour rate rises in 2014

Thursday 20th February 2014

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The New Zealand dollar weakened after the Federal Reserve minutes of its January meeting showed some officials raised the possibility of rate rises "relatively soon".

The kiwi slipped to 82.95 US cents at 8:10am in Wellington from 83.02 cents immediately before the 8am release of the minutes and 82.99 cents at 5pm yesterday. The trade-weighted index was unchanged from yesterday at 77.83.

The US dollar strengthened, pushing the kiwi lower, after the minutes which traders considered were positive on growth with a hawkish bias. The minutes showed policy makers disagreed on the likely timing of the Fed's first interest rate increase, with a few officials raising the possibility it might be appropriate to increase the federal funds rate "relatively soon".

"The market is taking it ever so slightly on the hawkish side of things so it is US dollar positive," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. "They are really focusing on a statement in the minutes that a few participants raised the possibility it might be appropriate to increase the Federal funds rate relatively soon."

Still, Tuck said that shouldn't come as a surprise as Dallas Fed president Richard Fisher and Philadelphia Fed president Charles Plosser, whose views have gained more prominence because they are voting members this year, have previously voiced concerns that the rate has been too low for a very long time.

"In the long term it doesn't actually change much for the kiwi because people will look through it and realise it is not actually new information," Tuck said.

In New Zealand today, reports are scheduled for release on fourth quarter producer prices at 10:45am, ANZ job advertisements for January at 10am, and the ANZ-Roy Morgan consumer confidence report for February at 1pm.

Finance Minister Bill English is scheduled to deliver a speech at midday on public administration where he is likely to try to talk down the prospect of spending government surpluses, Raiko Shareef, currency strategist at Bank of New Zealand, said in a note.

Traders will be eyeing China's latest HSBC/Markit Flash PMI which is expected to show February manufacturing in Asia's largest economy remained just below the 50 level which delineates contraction and expansion.

The New Zealand dollar weakened to 91.93 Australian cents at 8:10am in Wellington from 92.11 cents yesterday.

The local currency was little changed at 60.34 euro cents from 60.31 cents yesterday, slipped to 49.66 British pence from 49.75 pence and advanced to 84.93 yen from 84.79 yen.

 

BusinessDesk.co.nz



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