NZ dollar slips as Fed's rate hike, balance sheet views trump local election

Friday 22nd September 2017

The New Zealand dollar fell as the US Federal Reserve signals on balance sheet unwinding and interest rate hikes outweighed gains made earlier in the week after a poll showing the National Party in the lead ahead of tomorrow's vote.

The kiwi fell to 73.11 US cents as at 8am in Wellington from 73.21 cents late yesterday. The trade-weighted index was at 76.48 from 76.53.

The Federal Open Market Committee reiterated its projection for a third rate hike this year and more increases in 2018 while pointing to an October start date for trimming its US$4.5 trillion stockpile of government bonds and mortgage-backed securities. At home, a Newshub Reid Research poll put support for National at 45.8 percent and Labour's on 37.3 percent, meaning both parties would probably need to rely on New Zealand First, on 7.1 percent, to form the next government. The Greens were also on 7.1 percent. The kiwi rose on Wednesday after the 1News Colmar Brunton showed National on 46 percent to Labour's 37 percent.

"New Zealand might be set for a market-friendly election result but the bigger picture is being dictated by the FOMC," said Cameron Bagrie, chief economist at ANZ Bank New Zealand. "The Fed stuck to its guns that rates are going higher and balance sheet reduction is around the corner. Expect strength in the NZD/USD to continue to wilt as the USD firms."

The New Zealand dollar dropped to 53.82 British pence from 54.29 pence yesterday as the pound strengthened on speculation Prime Minister Theresa May will offer to pay 20 billion euros to the European Union during its exit from the economic bloc on condition it retains trade access.

The kiwi fell to 61.24 euro cents from 61.61 cents amid expectations Chancellor Angela Merkel's alliance will win this weekend's elections, giving her a fourth term in office.

The kiwi rose to 92.15 Australian cents from 91.54 cents and traded at 82.29 yen from 82.31 yen. It fell to 4.8151 yuan from 4.8238 yuan with little sign the Chinese currency was hurt by Stanard & Poor's downgrade of China's sovereign credit rating to A+ from AA-.

(BusinessDesk)

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