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NZ dollar falls as Fed's Powell talks up US economic oulook

Wednesday 28th February 2018

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The New Zealand dollar fell as Federal Reserve chair Jerome Powell gave an upbeat assessment of the US economy, stoking expectations for US interest rates to rise and prompting stocks on Wall Street to decline. 

The kiwi dropped to 72.43 US cents as at 8am in Wellington from 72.76 cents yesterday. The trade-weighted index decreased to 74.51 from 74.61 yesterday. 

In his first Congressional testimony as Fed chair, Powell stuck to the official view that interest rate increases will be "gradual". However, in response to a question on what would accelerate the pace of tightening, he said his personal view was that the US economy has strengthened since December. The yield on US 10-year Treasuries rose 5.5 basis points to 2.91 percent, while stocks on Wall Street fell, with the Dow Jones Industrial Average down 0.6 percent. Powell will testify before the Senate Banking Committee on Thursday in Washington. 

"Fed chair Powell’s upbeat testimony was viewed on the hawkish side compared to the prepared monetary policy report, sparking an equity sell-off and yield spike," ANZ Bank New Zealand chief economist Sharon Zollner said in a note. "The combination of a larger-than-expected trade deficit and perceived hawkishness from the new Fed chair has sent the kiwi lower, which it was looking primed to do anyway, to be fair."

Local data today include January travel and migration figures and the ANZ business confidence survey. Government figures yesterday showed a bigger January trade deficit than expected, which pushed the kiwi down against the Australian dollar. The local currency was almost unchanged at 92.79 Australian cents from 92.78 cents yesterday. 

The local currency traded at 52 British pence from 52.12 pence yesterday and edged up to 59.18 euro cents from 59.04 cents. It decreased to 77.74 yen from 77.84 yen yesterday and fell to 4.5753 Chinese yuan from 4.5889 yuan.


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