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NZ dollar sinks to lowest level for 2018 as market anticipates upbeat Fed

Tuesday 1st May 2018

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The New Zealand dollar fell to its lowest level so far this year on expectations the Federal Reserve will give an upbeat account of the US economy after this week's two-day meeting, keeping it on track to keep hiking interest rates.


The kiwi dollar dropped to 70.33 US cents as at 8am in Wellington and earlier touched 70.30 cents, the lowest since Dec. 27, from 70.77 cents late yesterday. The trade-weighted index fell to 73.19 from 73.51.


The US dollar index rose to the highest level in almost four months amid speculation a recent run of relatively strong US data keeps intact the case for the Fed to keep raising interest rates this year. Overnight figures showed the US March PCE inflation was 2 percent, meeting market forecasts and in line with the Fed's target, while a measure of personal spending rose. The kiwi didn't move much after Finance Minister Grant Robertson said in a speech that "high-level indicators" for the New Zealand economy "are strong".


"Reflecting the recent run of solid US data, we expect the FOMC statement on Wednesday (US time) to reflect continuing confidence in the Fed’s assessment of solid growth, full employment and normalising inflation," said Miles Workman, an economist at ANZ Bank New Zealand, in a note. "The NZD/USD is back on the defensive as the USD finds more support. A move below 70 (US) cents is now easily on the cards."


The kiwi fell to 58.23 euro cents from 58.36 cents yesterday although the euro was broadly lower after softer-than-expected German inflation figures. It traded at 93.40 Australian cents from 93.51 cents yesterday, ahead of the Reserve Bank of Australia's latest interest rate review.


In New Zealand today, traders will be watching for March building permits and overnight, the latest Global Dairy Trade auction. As well as the RBA policy review, governor Philip Lowe is scheduled to speak this evening.


The Fed is widely expected to keep rates on hold this week but the key will be the forecasts for the remainder of the year.  Many economists are now expecting four more rate hikes this year, according to MarketWatch and any confirmation of that will likely add to recent US dollar strength as it will further underpin rising US bond yields. 


The kiwi dollar fell to 51.07 British pence from 51.35 pence yesterday. It dropped to 76.87 yen from 77.24 yen and traded at 4.4543 yuan from 4.4821 yuan.



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