NZ dollar falls as renewed bets for Fed rate hike in March stoke greenback

Thursday 2nd March 2017

The New Zealand dollar fell amid growing speculation the US Federal Reserve will hike interest rates in March in an economy showing more signs of life and a president whose policies are seen to be stimulatory.

The kiwi dollar declined to 71.33 US cents as at 5pm in Wellington from 71.45 cents late yesterday and from 72.17 cents early yesterday. The trade-weighted index was little changed at 77.90.

The US dollar index rose to its highest level since Jan. 12 overnight after New York Federal Reserve President William Dudley talked up the prospects for US interest rate hikes while San Francisco Fed president John Williams said he saw no need to delay such a move in the face of stronger US employment and inflation. The Fed's Dudley told CNN that the case for raising interest rates "has become a lot more compelling" given Donald Trump's election as president and a Republican-controlled Congress. Helping buoy the US dollar, was a sell-off in US bonds, pushing yields higher. The yield on the 10-year Treasury note climbed to about 2.47 percent, the highest level in about two weeks.

"There's been a definite shift toward the Fed going in March," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. "It has been a combination of events. The selloff again in the US bond market makes the US dollar more attractive because US yields are higher. Trump is seen as inflationary and then the Fed comments. Clearly, March is alive and kicking" for a rate hike.

The kiwi didn't move much after Reserve Bank governor Graeme Wheeler reiterated that he was comfortable with economic projections underpinning its bias to keep the official cash rate on hold until the middle of 2019, which was outlined in the last monetary policy statement.

The New Zealand dollar traded at 93.18 Australian cents from 93.23 cents yesterday when it tumbled after figures showed Australia's economy grew 1.1 percent in the three months through December, beating economists forecasts.

The kiwi dollar fell as low as 70.98 US cents overnight in what Kelleher called "a flash crash" because of a lack of liquidity. He says 70 US cents is about fair value for the currency at the moment.

The local currency rose to 58.10 British pence from 57.77 pence and traded at 67.73 euro cents from 67.77 cents. It rose to 81.28 yen from 81.02 yen and fell to 4.9096 yuan from 4.9143.

The two-year swap rate was unchanged at 2.30 percent and 10-year swaps rose 3 basis points to 2.49 percent.

BusinessDesk.co.nz

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