NZ dollar heads for 1.4% decline in short week as traders rethink Fed rates

Thursday 24th March 2016

The New Zealand dollar is heading for a 1.4 percent fall this week as traders reassess their view on the outlook for US rates after several Federal Reserve officials were more upbeat about the world's biggest economy.

The kiwi fell to 66.98 US cents from 67.94 cents on Friday in New York last week, and down from 67.07 cents at 8am and 67.35 cents yesterday. The trade-weighted index was little changed at 71.54 from 71.49 yesterday, and is heading for a 1.2 percent weekly decline.

A BusinessDesk survey of 11 strategists and traders predicted the kiwi would trade between 65.80 US cents and 69.50 cents this week. Four expected it to remain relatively unchanged, four projected it would rise and three said it would decline.

The greenback has been recovering this week after being sold off in the wake of the Fed's scaled back projections for interest rate increases this year. Investors have been gloomier about the prospect for US rate hikes, ignoring upbeat economic data and emerging signs of inflation that Fed officials have been pointing out in a series of speeches this week.

"The markets are reversing the thoughts from (Fed chair Janet) Yellen last week," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. Three Fed speakers "indicated they think there will be two, at a minimum, for Fed hikes, while the market's only pricing in one, if that. So the US dollar, broadly speaking, is on the ascent."

Local government data today showed New Zealand posted an unexpected trade surplus of $339 million in February, propped up by the export of a $267 million drilling platform.

New Zealand two-year swap rates were unchanged at 2.25 percent, and 10-year swaps fell two basis points to 3.07 percent.

The local currency rose to 89.25 Australian cents from 88.30 cents yesterday. ANZ's Tuck said the kiwi had bounced back after testing the bottom of the range on that cross, and traders will be watching that cross closely to gauge the strength of Australia's economy.

The kiwi fell to 4.3600 Chinese yuan from 4.3714 yuan yesterday, and decreased to 75.46 yen from 75.65 yen. It edged down to 59.91 euro cents from 60.06 cents yesterday and was little changed at 47.51 British pence from 47.42 pence.

(BusinessDesk)

BusinessDesk.co.nz

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