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NZ dollar hold below 71 US cents after making small gains in Asian trading

Thursday 4th January 2018

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The New Zealand dollar was slightly higher in Asia after minutes from the latest Federal Reserve policy meeting showed the central bank remained on track to raise interest rates several times this year but uncertainties remain. 

The kiwi traded at 70.97 US cents as at 5pm in Wellington versus 70.83 cents late yesterday. The trade-weighted index was at 73.87 from 73.72 yesterday.

Most participants "reiterated their support for continuing a gradual approach to raising the target range," according to the minutes. They also showed policymakers expect President Donald Trump’s tax cuts to boost consumer spending but remain uncertain over the impact of fiscal stimulus on raising price pressures.  "Participants discussed several risks that, if realized, could necessitate a steeper path of increases in the target range, these risks included the possibility that inflation pressures could build unduly if output expanded well beyond its maximum sustainable level, perhaps owing to fiscal stimulus or accommodative financial market conditions,"  according to the minutes. 

However, they also discussed risks that could lead to a flatter trajectory for the federal funds rate in the medium term, including a failure of actual or expected inflation to move up to the Committee’s 2 percent objective.

The minutes initially "gave the (US) dollar a bit of a leg up and have kept the kiwi just below 71 cents" said Mark Johnson, a senior dealer at OMF. The kiwi had traded at 71.10 US cents just prior to the minutes. Johnson noted, however,  trading remains extremely thin with many participants on holiday. 

Looking ahead, investors will be watching for US payrolls data on Friday, which is expected to show the world's biggest economy added 188,000 jobs in December, down from 228,000 the previous month. Johnson said he is reasonably optimistic it will be in line with expectations, which will help boost the US dollar. 

The kiwi dollar rose to 52.49 British pence from 52.09 pence yesterday and traded at 90.59 Australian cents from 90.63 cents. It gained to 59.05 euro cents from 58.78 cents. It rose to 79.94 yen from 79.57 yen and traded at 4.6177  yuan from 4.6071 yuan.

New Zealand’s two-year swap rate was unchanged at 2.19 percent while the 10-year swap rate fell basis points to 3.14 percent.


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