NZ dollar gains as Fed's Brainard warns against hiking US rates too early

Tuesday 13th September 2016

The New Zealand dollar gained after Federal Reserve governor Lael Brainard warned against hiking interest rates too early, citing tepid inflation and a slack labour market, which cooled speculation the US central bank may be poised to tighten.

The kiwi rose to 73.50 US cents at 8am in Wellington from 73.17 cents yesterday. The trade-weighted index advanced to 78.14 from 77.93 yesterday.

Investors had been re-thinking the chances of the Fed moving as early as next week after a series of central bank officials appeared to favour such a move. That put Brainard's speech in focus as it was a late addition to the schedule and seen as a potential hint on the upcoming policy review as she's a voting member of the Federal Open Market Committee.

"Quite why the market was getting so beared up is beyond us – as Brainard points out, US inflation remains 'noticeably below our 2 percent target', and there is 'greater slack than previously anticipated, in the jobs market," ANZ Bank New Zealand senior rates strategist David Croy said in a note. "The NZD has regained some of its poise of late, and looks set to continue grinding higher as expectations of a Fed rate hike fade and markets focus on what is set to be some compelling local data this week."

New Zealand's currency has been buoyed by stronger than expected economic data and a recovery in global dairy prices, adding to an already compelling story for investors who have been buying the kiwi to benefit from the country's relatively high interest rates.

Government figures today will give an indication of where inflation is tracking with August food prices, ahead of the June quarter balance of payments tomorrow and gross domestic product on Thursday.

The local currency was little changed at 97.13 Australian cents from 97.09 cents yesterday and gained to 4.9083 Chinese yuan from 4.8857 yuan. It rose to 65.42 euro cents from 65.07 cents yesterday and was little changed at 55.09 British pence from 55.12 pence. The kiwi slipped to 74.81 yen from 75.03 yen yesterday.

(BusinessDesk)

BusinessDesk.co.nz

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