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NZ dollar gains on greenback weakness driven by US rates, economy outlook

Thursday 11th February 2016

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The New Zealand dollar gained against a broadly weaker greenback on concerns the US economy may not be growing as fast as expected and the track for Federal Reserve interest rate hikes will be slower and lower.

The kiwi rose to 66.70 US cents as at 5pm in Wellington, from 66.17 cents late yesterday. The trade-weighted index rose to 72.35 from 72.01 yesterday.

In her semi-annual testimony, Fed chair Janet Yellen affirmed her expectation for “gradual increases” in the central bank’s key target interest rate but also noted downside risks including tighter US financial conditions, persistently low inflation, a higher US dollar, global markets turmoil and risks for Chinese growth and the Chinese yuan. Her tone surprised some in the market, and saw the greenback weaken against the yen, and spillover into currencies such as the kiwi.

"Yellen was a bit more dovish that the market expected," said Michael Johnston, senior trader at HiFX. "We saw US dollar liquidation and buying of the yen which spilled over to the kiwi." The moves were exacerbated by a bank holiday in Japan and Chinese New year, which reduced liquidity in the market, he said.

The kiwi dollar may continue to trade in a range, with support at 65.60 US cents and resistance at about 67.60 cents, Johnston said. Traders will be anticipating the dairy auction next week, which "could see the lustre of the kiwi come back off" and the weak greenback is a factor that will nudge it higher again.

The kiwi didn't move much after a survey showed New Zealand manufacturing activity rose to a 15-month high in January, with an uptick in production and employment pointing to further improvements ahead, though not across all industries.

The New Zealand dollar rose to 94.06 Australian cents from 93.67 cents yesterday, and gained to 59.09 euro cents from 58.59 cents. The kiwi gained to 45.89 British pence from 45.72 pence, and rose to 4.3835 yuan from 4.3480 yuan. It fell to 75.18 yen from 75.84 yen yesterday.

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