NZ dollar little changed as Fed's path comes back into view, weakening greenback

Tuesday 22nd March 2016

The New Zealand dollar, which has gained almost 7 percent from its January lows, was little changed as Standard & Poor's affirmed the sovereign rating and traders weakened the greenback on speculation the Federal Reserve won't hike interest rates aggressively.

The kiwi traded at 67.68 US cents at 5pm in Wellington, from 67.65 cents at the start of the day and from 67.60 cents late yesterday. The trade-weighted index rose to 71.86 from 71.74 yesterday.

The Federal Reserve's signal last week that it wouldn't hike US rates as fast as previously projected has driven down the US dollar and boosted currencies including the kiwi, although the New Zealand dollar has felt the offsetting force of the Reserve Bank's quarter-point cut to the official cash rate and the suggestion of more to come.

"The Fed is the main game in town," said Imre Speizer, currency strategist at Westpac Banking Corp. "Clearly something is trumping the local Reserve Bank in terms of influence. The FOMC did a dovish shift. We're still reeling from that weaker US dollar which is pushing a lot of other currencies up."

Speizer said the currency market has the view that data on the US economy "overall has gradually improved" and it was the Fed's decision to reduce the projection for US interest rates to two hikes from four that had changed market sentiment.

The kiwi didn't move much after Standard & Poor's affirmed New Zealand's foreign currency credit rating at AA with a stable outlook, citing the nation's monetary and fiscal flexibility and a resilient economy that offset the risks of high external debt. The stable outlook reflects S&P’s expectation that New Zealand’s fiscal performance “will improve over the medium term, offsetting vulnerabilities associated with its high external debt.”

The New Zealand dollar traded at 89.14 Australian cents from 89.10 cents yesterday. It rose to 60.14 euro cents from 59.96 cents and gained to 47.08 British pence from 46.79 pence. The kiwi rose to 75.70 yen from 75.28 yen and to 4.3938 yuan from 4.3832 yuan.

The two-year swap rate rose 1 basis point to 2.22 percent and 10-year swaps rose 1 basis point to 3.03 percent.

BusinessDesk.co.nz

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