NZ dollar falls on speculation US dollar will strengthen as Fed edges toward rate hike

Friday 13th May 2016

The New Zealand dollar declined amid speculation the US dollar will strengthen as the prospects of a Federal Reserve interest rate hike come into view and the market retains its bets that the Reserve Bank will cut rates at least once more.

The kiwi fell to 68.01 US cents as at 5pm in Wellington, from 68.31 cents late yesterday. The trade-weighted index fell to 72.73 from 72.84 yesterday.

Investors are awaiting US economic figures tonight including April retail sales, producer prices and consumer sentiment for clues to the pace of growth in the world's biggest economy, after Boston Federal Reserve president Eric Rosengren said markets had become too pessimistic about the US outlook. The kiwi held near a two-month high against the Australian dollar in an adjustment that stems back to last week's interest rate cut by the Reserve Bank of Australia driven by weak inflation.

"Generally, across the board the US dollar looks like it has got room to strengthen," said Alex Hill, head of corporate foreign exchange at NZ Forex. "The reality is we could be looking at a hike from the Fed in June so it makes sense for the US dollar to strengthen when every other central bank is looking to cut."

Hill said the kiwi didn't react much to figures today showing retail sales rose 0.8 percent in the first quarter, the slowest pace in three quarters. "We still see a rate cut from the RBNZ," he said.

ANZ New Zealand economists said today that the Reserve Bank may wait until its August meeting to cut rates again rather than going in June, while adding that further RBNZ easing "is still more likely than not." They said the economy is “showing very few signs of rolling over”, despite dairy strains and tighter financial conditions, as activity indicators remain “solid” and business and consumer sentiment hold up at “decent” levels.

The kiwi traded at 93.13 Australian cents, having earlier reached 93.28 cents, a two-month high, on speculation Australia's central bank will move again to cut rates.

The New Zealand dollar slipped to 47.11 British pence from 47.30 pence yesterday and was little changed at 59.80 euro cents. It fell to 4.4361 yuan from 4.4402 yuan and declined to 74 yen from 74.33 yen.

The two-year swap rate rose 2 basis points to 2.21 percent and the 10-year swaps rose 2 points to 2.85 percent.

BusinessDesk.co.nz

Comments from our readers

No comments yet