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NZ dollar little changed as hopes grow for clear signal on US rates from Yellen

Friday 26th August 2016

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The New Zealand dollar was little changed, holding above 73 US cents as traders debate whether Federal Reserve chair Janet Yellen will give a clear signal on the timing and pace of US interest rate hikes when she addresses fellow central bankers at Jackson Hole.

The kiwi traded at 73.10 US cents as at 5pm in Wellington, from 73.16 cents late yesterday. The trade-weighted index slipped to 77.40 from 77.50.

With little domestic economic data of note, all eyes have been on the Jackson Hole symposium of central bankers amid questions about whether Yellen will echo the comments of other Fed officials in suggesting the central bank is close to a rate hike. That would provide some relief for Reserve Bank governor Graeme Wheeler who defended current monetary policy this week in the face of stubbornly low inflation and a high kiwi dollar, while reiterating that another cut to the official cash rate is likely.

"The market is waiting on tenterhooks for Janet Yellen and really hoping we're going to see some firm indications on when they are going to raise rates," said Michael Johnston, senior trader at HiFX. "I think she'll be saying it is looking like they will raise rates in the not too distant future but won't tie her hands further than that."

While the market still sees the prospects of a rate hike by the Fed in December, "this time last year the market was expecting to see three or four rate hikes in 2016 and we've yet to see one," he said.

The kiwi fell to 95.77 Australian cents from 95.92 cents and rose to 4.8695 yuan from 4.8665 yuan. It declined to 64.74 euro cents from 64.91 cents and was little changed at 55.34 British pence from 55.29 pence. The kiwi slipped to 73.44 yen from 73.50 yen.

New Zealand's two-year swap rate fell 2 basis points to 1.93 percent and 10-year swaps declined 3 basis points to 2.36 percent.

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