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NZ dollar extends gains as Fed rate hike bets fade, traders debate timing of RBNZ cut

Friday 29th April 2016

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The New Zealand dollar extended its gains back toward 70 US cents as weaker US economic growth gave the Federal Reserve less reason to rush to hike interest rates, weighing on the greenback.

The kiwi rose to 69.73 US cents as at 5pm in Wellington, from 69.33 cents late yesterday. It was last above 70 cents on April 21. The trade-weighted index rose to 73.31 from 73.14 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, has fallen to its lowest level in eight months on a combination of weaker economic data and a Bank of Japan that elected not to add to its stimulus measures. Today the People's Bank of China responded to the weakening US dollar by raising the yuan reference rate by 0.6 percent to 6.4589 per dollar, the biggest increase since 2005.  A recovery in some commodity prices has helped currencies such as the kiwi and the Australian dollar.

"There's no real reason to buy US dollars right now," said Chris Weston, chief market strategist at IG Markets. US GDP "was certainly softer" and the implied probability of a Fed rate hike has dropped. "There's less chance that we get a (Fed) rate hike anytime soon."

Weston said it would take a re-emergence of volatility in global financial markets and a change to sentiment around risk to drive the kiwi and Aussie lower again.

"With the current backdrop we have, I wouldn't be shorting the kiwi with any conviction right now," he said.

The New Zealand dollar is heading for a 0.6 percent gain against the greenback on the week, having jumped after the Reserve Bank statement yesterday that some traders took as showing less conviction for cutting interest rates again.

The kiwi was little changed at 91.05 Australian cents and 47.61 British pence. It edged up to 61.23 euro cents from 61.16 cents. The kiwi fell to 74.83 yen from 75.54 yen late yesterday and rose to 4.5172 yuan from 4.4628 yuan.

The two-year swap rate rose 3 basis points to 2.24 percent and the 10-year swaps rose 1 basis point to 2.97 percent.

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