NZ dollar heads for 2.4% weekly drop as US rate hikes back in focus, payrolls looms

Friday 6th November 2015

The New Zealand dollar is heading for a 2.4 percent weekly decline after Federal Reserve chair Janet Yellen kept alive the prospect of a rate hike next month ahead of tonight's payrolls report, and as a drop in dairy prices and shrinking employment weighed locally.

The kiwi fell to 66.09 US cents at 5pm in Wellington from 67.71 cents on Friday in New York last week. It traded at 66.20 cents at 8am and 65.96 cents yesterday. The trade-weighted index increased to 71.62 from 71.41 yesterday, and is heading for a 2 percent weekly decline.

A BusinessDesk survey of nine currency analysts predicted the kiwi would trade between 65.45 US cents and 69.20 cents this week. Five picked the kiwi would fall, two said it might gain and two expected it to be relatively unchanged.

Fed chair Yellen this week said December's meeting of the Federal Open Market Committee was live for a possible increase in the federal funds rate, with the world's biggest central bank upbeat on the US services sector. It will get another update on the strength of the economy when non-farm payrolls for October are reported on Friday in Washington, which are expected to show the world's biggest economy added 182,000 workers that month.

"We've got two more payrolls before the Fed meets in December so it's reasonably important," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "The kiwi looks under pressure because Fed tightening is coming up and the big data confirms that view."

The local currency has also declined this week after milk product prices fell at the this week's GlobalDairyTrade auction, and the future market is pricing in a further decline. Weaker than expected employment data added to a downbeat view on the local economy.

New Zealand's two-year swap rate fell three basis points to 2.76 percent at 5pm in Wellington, and the 10-year swap declined four basis points to 2.53 percent.

The kiwi increased to 92.46 Australian cents from 92.17 cents yesterday after the Reserve Bank of Australia's monetary policy statement indicated interest rates were likely to stay on hold, saying earlier easing and a weaker currency had supported growth.

The local currency rose to 4.1966 Chinese yuan from 4.1838 yuan yesterday, and advanced to 80.39 yen from 80.12 yen. It was little changed at 60.70 euro cents from 60.65 cents, and gained to 43.44 British pence and 42.88 pence.

BusinessDesk.co.nz

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