NZ dollar falls as Fed rate hike, Italian debt debate boost greenback

Friday 28th September 2018

The New Zealand dollar fell against a stronger greenback as higher US interest rates and an upcoming debate on Italy's fiscal health buoyed the world's reserve currency.

The kiwi declined to 66.14 US cents from 66.54 cents yesterday. It traded at 56.74 euro cents from 56.62 cents yesterday.

The US dollar index advanced 0.8 percent as the Fed's track for higher rates continued to make the greenback an increasingly attractive investment, as other central banks including New Zealand are seen keeping monetary policy unchanged. Meanwhile, the euro fell 0.7 percent ahead of Italy's budget debate where it's feared politicians may not be able to meet European Union debt rules. The yield on 10-year Italian government bonds rose 8 basis points to 2.92 percent.

"A last minute dispute between Italy’s two deputy PMs and the finance minister over a demand for extra spending and thus the size of the fiscal deficit, got the market’s attention and saw a weaker euro and higher Italian bond yields," Bank of New Zealand senior markets strategist Jason Wong said in a note. "The USD is stronger across the board which sees the NZD down to its lowest level this week."

Yesterday's Reserve Bank review did little to move the currency, with the official cash rate kept at 1.75 percent and governor Adrian Orr leaving the door open for a cut.

Wong said the market still accepts an outside chance for lower interest rates, pricing in a 30 percent chance of a reduction in the coming year.

Local data today include a consumer confidence survey and August building consents. Today also marks the end of the quarter, when large institutions regularly reassess their portfolio weightings.

The kiwi traded at 91.69 Australian cents from 91.63 cents yesterday and fell to 4.5550 Chinese yuan from 4.5721 yuan. It was little changed at 50.55 British pence from 50.58 pence yesterday and traded at 74.98 yen from 75.01 yen. The trade-weighted index was at 71.90 from 72.02 yesterday.

(BusinessDesk)

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