NZ dollar falls as certainty grows for US rate hike in December

Thursday 17th November 2016

The New Zealand dollar fell as the greenback rose to a level it has only touched once before since 2003 after Federal Reserve Bank of St. Louis President James Bullard said Donald Trump's presidential victory is unlikely to prevent a Fed rate hike next month.

The local currency fell to 70.74 US cents as at 8am in Wellington from 70.92 cents late yesterday. The trade-weighted index edged up to 77.43 from 77.36 from 77.47 as the Australian dollar weakened ahead of employment data for October, which are expected to show Australia's economy added 15,000 jobs last month, while the unemployment rate rose to 5.7 percent from 5.6 percent. Traders said earthquake concerns are also restraining the kiwi.

"The market now sees a 14 December Fed hike as virtually a done deal" with odds of 93 percent priced in, said Kymberly Martin, senior market strategist at Bank of New Zealand. "This view was corroborated by Fed’s Bullard."

The US dollar index rose as high as 100.584, only the second time since 2003 that it has exceeded 100.5. US president-elect Trump has proposed tax cuts and spending US$550 billion on infrastructure and had talked of US$1 trillion of funding with private sector financing, measures likely to lift US economy growth, inflation and interest rates.

New Zealand's two-year swaps fell 1 basis point to 2.21 percent while the 10-year swap rate fell 1 point to 3.21 percent.

Martin said the two-year swap rate "remains close to fair value on our view that the OCR will remain at 1.75 percent throughout next year, before a gradual hiking cycle begins in late H1 2018."

The US dollar index, which measures the greenback against a basket of major currencies, has risen above 100 for the first time since December 2015 amid expectations the Federal Reserve will raise interest rates next month.

The kiwi dollar climbed to 94.51 Australian cents from 93.80 cents ahead of the employment figures. It traded at 77.29 yen from 77.36 ye and fell to 4.8620 yuan from 4.8711 yuan. The local currency was little changed at 56.84 British pence and rose to 66.25 euro cents from 66 cents.

BusinessDesk.co.nz

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