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NZ dollar heads for 1.2% weekly fall as greenback finds favour on rate hike view

Friday 23rd February 2018

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The New Zealand dollar is heading for a 1.2 percent weekly fall as the greenback comes back in favour after minutes from the US Federal Reserve cemented the view it will lift interest rates at least three times this year while New Zealand's central bank remains firmly on hold. 

The Kiwi fell to 73 US cents as at 5pm in Wellington from 73.88 cents last Friday in New York, and was little changed from 73.08 cents yesterday. The trade-weighted index fell to 75.01 from 75.21 yesterday.

The Fed started tightening its ultra-loose policy at the end of 2015 after keeping rates on hold for almost a decade. It raised interest rates three times in 2017 and investors expect it to tighten again in March, followed by two more hikes this year. 

The kiwi's move "is still being dictated by the US dollar comeback after yesterday's FOMC (Federal Open Market Committee)," said Alex Hill, head of dealing at HiFX. "Clearly the Fed, in general, are happy with the inflation expectations and it just locks in the fact we are going to see some rate rises from them this year."

Retail sales volumes rose 1.7 percent in the final three months of 2017, on an adjusted basis for seasonal and price effects, from a revised 0.3 percent gain in the third quarter, Statistics New Zealand said.  Markets are still pricing the first New Zealand rate hike in May 2019. 

Still, Hill said the kiwi failed to get a lift from better-than-expected fourth quarter domestic retail sales data "as nothing has changed in terms of New Zealand rate expectations." 

The kiwi has strong resistance at 74.50 US cents and a weekly close below 73.30 US cents would suggest more short-term downside, he said. 

Looking ahead, Hill said investors will be watching for Fed chair Jerome Powell's testimony next Wednesday in the US. 

The kiwi fell to 59.33 euro cents from 59.52 cents yesterday. The local currency dipped to 52.33 British pence from 52.54 pence yesterday.

The New Zealand dollar slipped to 93.23 Australian cents from 93.72 cents yesterday and to 4.6268 Chinese yuan from 4.6388 yuan. It traded at 78.04 yen from 78.44 yen yesterday.

New Zealand's two-year swap rate was unchanged at 2.17 percent, while 10-year swaps fell 2 basis points to 3.24 percent.


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