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NZ dollar pares gains in light trading ahead of Fed review

Tuesday 20th March 2018

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The New Zealand dollar pared overnight gains against the greenback in thin trading as markets focus on the upcoming US Federal Reserve policy review with the Fed widely expected to lift interest rates. 

The kiwi fell to 72.23 US cents as at 5pm in Wellington from 72.53 US cents as at 8am in Wellington, though still up from 72.10 cents yesterday. The trade-weighted index was at 74.31 from 74.27.

The Federal Open Market Committee is expected to raise the fed funds rate a quarter point to a range of 1.50 percent to 1.75 percent on Wednesday in Washington in new chair Jerome Powell's first outing. That could push the kiwi below key support levels, in particular as New Zealand's Reserve Bank likely keep the official cash rate at 1.75 percent and signal no change on the immediate horizon. 

Risk appetite has also been dented by news reports that US President Donald is expected to unveil up to US$60 billion in new tariffs on Chinese imports by Friday, targeting technology, telecommunications and intellectual property. According to Reuters, the White House declined to comment Monday. China has vowed to take retaliatory measures in response.

"If it goes below 71.75 (US cents), it will go pretty hard toward 70.50. I fail to see how we are not going to see US dollar strength for the rest of the week," said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank.

Overall, "I think (the kiwi) is holding on by the skin of its teeth" and has held up relatively well on the day because it has been largely sidelined by global news, he said. 

Kelleher said the dairy auction tonight may also weigh on the New Zealand dollar if milk prices are lower given market expectations for them to be largely unchanged. Investors will also be watching for the new policy targets agreement between the central bank and the finance minister, expected Thursday or Friday, he said. 

The local currency rose to 76.76 yen from 76.27 yen yesterday. It traded at  51.45  British pence from 51.76 pence yesterday after the UK and European Union agreed terms for the Brexit transition which is expected to be approved at the EU summit this week. The kiwi traded at 58.50 euro cents from 58.75 cents yesterday.

The kiwi rose to 93.70 Australian cents from 93.61 cents yesterday and gained to 4.5691 Chinese yuan from 4.5649 yuan.

New Zealand's two-year swap rate fell 2 basis points to 2.24 percent and the 10-year swap rate fell 3 basis points to 3.18 percent. 

(BusinessDesk)

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