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NZ dollar rises above 72 US cents as greenback slips before Fed statement

Wednesday 14th December 2016

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The New Zealand dollar rose above 72 US cents as the greenback weakened before the Federal Reserve's latest policy statement, which is expected to deliver a long-heralded rate hike in the US.

The kiwi dollar traded at 72.15 US cents as at 5pm in Wellington from 71.94 cents late yesterday. The trade-weighted index rose to 79.18 from 78.91.

The Federal Open Market Committee's two-day meeting will wind up tonight and decisions announced at the start of New Zealand's day on Thursday. Investors have priced in more fiscal stimulus for the US economy under what may be a borrow and spend programme from president-elect Donald Trump, who isn't actually sworn in until Jan. 20 next year. Fed officials won't have been able to assess the scope of any of the new administration's policies or accurately reflect them in the official economic projections

"There are very few policy details at this stage in terms of Trump's proposals. That's the elephant in the room," said Mark Johnson, senior dealer at OMF.  "In terms of a rate hike, that's a near-certainty."

At the media conference, Fed chair Janet Yellen may want to deliver "a pretty steady message", pointing to two hikes in 2017, Johnson said. "The tricky thing has been the trajectory of the US dollar" because as it goes higher it has the effect of tightening monetary conditions.

"Will it be a hawkish hike or a dovish hike," Johnson said. "No doubt she will raise rates. If she tries to cool things down, only two hikes, or hikes data-dependent, there could be some profit-taking in long (US) dollar positions. He noted it was only the second rate hike in 10 years. "That's gradual."

The Fed is widely expected to announce a 25 basis point increase in the fed funds rate to a range of 0.5 percent-to-0.75 percent.

The kiwi rose to 4.9797 yuan from 4.9622 yuan late yesterday. It traded at 67.80 euro cents from 67.62 cents late yesterday and rose to 96.24 Australian cents from 95.93 cents. The local dollar traded at 56.98 British pence from 56.73 pence. The kiwi gained to 83.05 yen from 82.78 yen.

The two-year swap rate rose 1 basis points to 2.27 percent and the 10-year swap rate gained 1 basis point to 3.41 percent.

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