NZ dollar heads for 1.3% weekly gain as greenback falls on Fed outlook

Friday 18th March 2016

The New Zealand dollar is heading for a 1.3 percent gain this week as demand for the greenback waned after the US Federal Reserve scaled back planned rate hikes because of weakening prospects for the global economy.

The kiwi rose to 68.39 US cents at 5pm in Wellington from 67.50 cents on Friday in New York last week. It traded at 68.57 cents at 8am, up from 67.70 cents yesterday. The trade-weighted index rose to 72.29 from 71.98 last week, and is heading for a 1.1 percent weekly gain.

A BusinessDesk survey of 12 currency advisers on Monday predicted the kiwi would trade between 65 US cents and 69 US cents this week, with six picking it to fall, one projecting a gain, and five expecting it to be little changed.

The US dollar index, a measure of the greenback against a basket of currencies, dropped to a five-month low as traders scaled back their holdings in the world's reserve currency after the Fed this week lowered its projected rate hikes to two from a previous four. Fed chair Janet Yellen latched on to the volatility in the global financial markets. While noting strength in the US economy, she said signs of domestic inflation may be transitory.

"We're watching the US data, and the US data is telling us it's the Fed that has been spooked and not the US economy," said Sam Tuck, senior foreign exchange strategist at ANZ Bank in Auckland. The 68.50/69 US cents area where the kiwi is trading "is quite an important level" and if it breaks higher, the currency "can go above 70."

Tuck said the local currency may push higher in the short-term, but over a longer horizon risks are skewed to the downside with economic indicators pointing to robust US growth.

Local consumer confidence edged lower in March while remaining upbeat as New Zealanders retained confidence in the economy. Data yesterday showed New Zealand's gross domestic product grew a stronger than expected 0.9 percent in the December quarter, driven by business services, retail and accommodation, and construction.

New Zealand's two-year swap rate fell two basis points to 2.22 percent at 5pm in Wellington, and 10-year swaps declined three basis points to 3.01 percent.

The local currency climbed to 89.31 Australian cents from 88.96 cents yesterday and advanced to 4.4204 Chinese yuan from 4.3991 yuan. It was little changed at 60.39 euro cents from 60.32 cents yesterday and fell to 47.28 British pence from 47.48 pence. The kiwi edged down to 76.05 yen from 76.14 yen yesterday.

BusinessDesk.co.nz

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