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NZ dollar falls vs euro as ECB notes improving outlook; US rate hike seen coming

Friday 10th March 2017

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The New Zealand dollar fell against the euro after the European Central Bank acknowledged the improving economic outlook in the single market region, and dropped below 69 US cents for the first time since January on the expectation of a rate hike next week. 

The kiwi fell to 65.09 euro cents as at 8am in Wellington from 65.52 cents yesterday. It dipped to 68.90 US cents from 69 cents yesterday. 

The euro rallied after ECB president Mario Draghi said his governing council doesn't expect to loosen monetary policy further as the growth outlook for the European bloc of nations gets better, but reaffirmed its commitment to a quantitative easing programme to stoke inflation in the region. The US dollar index, a measure of the greenback against a basket of currencies, dipped 0.2 percent ahead of US non-farm payrolls data which are expected to show the world's biggest economy added 200,000 jobs last month. The strength of the US economy and potential stimulus from President Donald Trump's fiscal plans have traders expecting the Federal Reserve to hike the federal funds rate next week. 

"It’s only early days yet, but with a March Fed rate hike now fully priced and two full hikes priced in over the remainder of the year after that, the bulk of the interest rate expectations re-adjustment looks done, and is unlikely to add fresh support to the USD," ANZ Bank New Zealand senior rates strategist David Croy said in a note. "Local factors remain NZD supportive, and we expect dips to be shallow."

Local data today include retail spending on electronic cards for February. The Reserve Bank is keeping a watching brief on consumer spending, which was unexpectedly stronger than expected through the tail end of last year. 

The kiwi was unchanged at 91.86 Australian cents ahead of mortgage lending data across the Tasman which are expected to show a small dip in the typically quiet month of January. It fell to 4.7593 Chinese yuan from 4.7758 yuan yesterday, with Chinese credit figures today likely to show a stable expansion of the money supply. 

The local currency slipped to 56.56 British pence from 56.75 pence yesterday and was little changed at 79.15 yen from 79.02 yen.

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