NZ dollar holds gains as Fed nears 'neutral'

Monday 19th November 2018

The New Zealand dollar held most of its gains from last week after Federal Reserve vice chair Richard Clarida said future rate hikes will depend on data with policy near a 'neutral' setting.

The kiwi traded at 68.53 US cents as at 8am in Wellington, from 68.76 cents on Friday in New York but up from 68.23 cents in Asia last week. The trade-weighted index was at 74.71 from 74.83 last week.

Clarida told CNBC that any future increases in the federal funds rate will rely on economic data with the 2-to-2.25 percent range almost neutral. The US dollar index fell 0.5 percent to 96.43 as investors interpreted the newly-installed vice chair's comments as dovish for monetary policy. The Fed's track for higher interest rates has supported the greenback through much of the year and pushed US bond yields higher.

"On any other day, the market might have shrugged off these comments, but it seems that the market was looking for an excuse to take US rates and the USD lower," Bank of New Zealand senior markets strategist Jason Wong said in a note.

Meanwhile, tensions between the US and China continued to weigh. The kiwi was initially supported by US President Donald Trump's optimism on Friday that a deal could be reached. However, comments by vice-president Mike Pence and Chinese President Xi Jinping at the APEC meeting in Papua New Guinea eroded that upbeat sentiment.

Wong said the kiwi dollar's outlook for the rest of the year will depend on how US-China trade talks develop.

"If nothing really has changed and further tariffs take effect from 1 January, then it would be easy to see the NZD reverse course," he said. "However, a ceasefire would provide further support to the NZD."

Local data today include the BNZ-Business New Zealand performance of services index.

The kiwi traded at 93.71 Australian cents from 93.78 cents last week and fell to 77.23 yen from 77.52 yen. It declined to 4.7537 Chinese yuan from 4.7662 yuan last week.

The local currency traded at 53.41 British pence from 53.50 pence last week and was at 60.09 euro cents from 60.16 cents.

(BusinessDesk)

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