NZ dollar holds above 72 US cents after Fed minutes, as NZ growth prospects prevail

Thursday 18th August 2016

The New Zealand dollar was little changed above 72 US cents after minutes of the last Federal Reserve meeting showed US policymakers divided on the timing of rate hikes, while domestic indicators added to the case for a strong kiwi.

The kiwi traded at 72.47 US cents as at 8am in Wellington, from 72.52 cents late yesterday. It rose to as high as 72.69 cents immediately after the Fed minutes were released before giving up most of the gains. The trade-weighted index was at 76.61 from 76.68.

The Federal Open Market Committee minutes showed that while some members favoured an early hike in interest rates, others wanted to wait for the flow of data to determine whether inflation was likely to pick up before raising rates. Traders are now expecting no move from the Fed until at least December. By contrast, fundamentals remain robust for the kiwi, with a surge in dairy prices yesterday, signs of an improving labour market and an interest rate premium that's still sufficient to draw investors.

"Growth remains a key currency fundamental and New Zealand has it," said Cameron Bagrie, chief economist at ANZ New Zealand. "Specific local currency support was seen in spades yesterday. That support is not set to change anytime soon and equals a strong – though not necessarily stronger – currency. USD direction still key and the Fed is in data-watch mode."

The greenback had picked up earlier after New York Federal Reserve President William Dudley said a September rate hike "is possible", stoking speculation for a more hawkish tone in the FOMC minutes. In New Zealand, traders will be watching for the ANZ Roy Morgan Consumer Confidence for August while across the Tasman, labour market data is due out.

The local currency rose to 94.71 Australian cents from 94.54 cents yesterday. It fell to 72.63 yen from 73.14 yen and slipped to 64.17 euro cents from 64.54 cents. The kiwi dropped to 55.54 British pence from 55.67 pence and rose to 4.8061 yuan from 4.8087 yuan.

BusinessDesk.co.nz

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