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NZ dollar drops below 73 US cts as rising US wages stoke inflation outlook

Monday 5th February 2018

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The New Zealand dollar fell below 73 US cents for the first time in almost a week as faster wage growth in the US stoked inflation expectations, pushing up the greenback and yields on US Treasuries. 

The kiwi traded at 72.92 US cents as at 8am in Wellington from 73.01 cents on Friday in New York, down from 73.66 cents at the New Zealand close last week. The trade-weighted index was at 74.66 from 74.69 last week. 

The yield on 10-year US Treasuries rose to 2.84 percent and the US Dollar Index after US nonfarm payrolls showed the world's biggest economy added 200,000 jobs last month, more than expected, while average hourly earnings climbed an annual 2.9 percent, the fastest acceleration in almost eight years. Investors already predict the Federal Reserve will hike interest rates three times this year, and the data firmed up expectations of an increase in March under new chair Jerome Powell. Stocks on Wall Street dropped as the attraction of equities dwindles on the prospect of higher interest rates, undermining risk-sensitive assets such as the kiwi dollar. 

"Looking through the month to month volatility, US average hourly earnings have been trending higher over the past five years, lending support to the Fed’s argument that the falls in the US unemployment rate will eventually generate wage pressure," Bank of New Zealand interest rate strategist Nick Smyth said in a note. "The decline in global stock markets contributed to the NZD’s underperformance; the NZD has historically tended to perform poorly during periods of risk aversion."

No local data is scheduled today and New Zealand markets are closed tomorrow for the Waitangi Day public holiday. Investors will be watching December quarter employment figures and the latest GlobalDairyTrade auction on Wednesday, followed by the Reserve Bank's first policy review of the year on Thursday. 

The local currency traded at 80.30 yen from 80.42 yen on Friday in New York and was little changed at 92.13 Australian cents from 92.08 cents. It traded at 58.63 euro cents from 58.58 cents last week and was almost unchanged at 51.67 British pence from 51.69 pence last week. The kiwi fell to 4.5928 Chinese yuan from 4.5991 yuan last week. 


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