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NZ dollar falls as investors eye Reserve Bank, Fed decisions

Monday 24th September 2018

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The New Zealand dollar slid, stemming a five-day advance on increased risk appetite, as investors eyed central bank decisions on interest rates at home and the US later this week.

The kiwi traded at 66.69 US cents at 9am in Wellington, falling from 66.84 cents on Friday in New York and down from 66.90 cents last week in Asia.

The Reserve Bank is set to announce the results of its latest official cash rate review on Thursday, while the US Federal Open Market Committee is widely expected to announce an interest rate increase at the end of its two-day policy meeting earlier that day.

The kiwi “looks set to face a week of competing tensions, with the broader rally in risk appetites set to go head-to-head with a still dovish RBNZ and a key FOMC decision,” said ANZ's chief economist Sharon Zollner and senior macro strategist Philip Borkin. “The path of least resistance looks higher for now, but it may not be a smooth ride.”

The Reserve Bank is expected to keep its rate steady on Thursday. Following last week’s report showing better-than-expected economic growth, analysts will scrutinise the review for signs the latest GDP data have brightened the central bank’s outlook, including on interest rates.  

“The RBNZ will leave the OCR on hold and despite Q2 GDP coming in much stronger than the RBNZ expected we wouldn’t be surprised to see language still suggesting that the next OCR move could be up or down,” said BNZ senior markets strategist Jason Wong. 

“But the balance of risk around any tweak in tone seems clear - if the bank were to change its language, we think it would be in a less dovish/more hawkish direction,” according to Wong.

In the US, the Fed will also offer an update to its economic and rate forecasts on Thursday, while Fed Chair Jerome Powell will speak at a press conference.

“Focus will also be on whether the Fed sticks to its projected rate hike path amid trade uncertainty and a flattening yield curve - recent commentary by officials suggests they will,” Wong noted. 

The kiwi declined to 74.98 yen from 75.42 yen at 5pm on Friday, and advanced to 51 British pence from 50.40 pence. It was little changed at 91.76 Australian cents from 91.72 cents, at 56.78 euro cents from 56.80 cents, and at 4.5722 yuan from 4.5766 yuan. The trade-weighted index was last at 72.23 from 72.28 on Friday.


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