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NZ dollar loses ground against US dollar as market decides Fed officials were more upbeat

Thursday 22nd February 2018

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The New Zealand dollar pared early gains against the greenback as the market digested the minutes from the US Federal Reserve's latest policy meeting. 

The kiwi was at 73.08 US cents at 5pm in Wellington from 73.77 US cents after the Fed minutes were released at about 8am NZ time, and from 73.34 cents late yesterday. The trade-weighted index was at 75.21, from 75.31.

The kiwi initially rose when the minutes of the Fed's Jan. 30-31 policy meeting showed committee members still favoured more gradual rate hikes but swiftly pared the gains as investors digested the fact that the economic outlook was more positive. 

According to the minutes, a majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate and  "almost all participants continued to anticipate that inflation would move up to the committee’s 2 percent (per annum) objective over the medium term as economic growth remained above trend and the labor market stayed strong." 

Three rate hikes are now almost fully priced in for this year, compared to two in December, Reuters reported. 

"The dollar initially fell but then turned around as the market decided the minutes are probably mildly more upbeat," said Ross Weston, a senior trader at Kiwibank. With little domestic data to push things around, the New Zealand dollar will remain at the mercy of US dollar moves, he said.

He noted, however, markets will be watching for the fourth quarter retail trade survey Friday.  Investors are expecting a fairly strong number, which could help the New Zealand dollar, "but it's not really about the kiwi right now, it all about the US dollar," he said.

The kiwi rose to 93.72 Australian cents from 93.31 cents yesterday.  The kiwi traded at  59.52 euro cents from 59.46 cents and gained to 52.54 British pence from 52.42 pence. It eased to 78.44 yen from 79.02 yen and fell to 4.6388 yuan from 4.6525 yuan.

New Zealand's two-year swap rate rose 1 basis point to 2.17 percent, while 10-year swaps were unchanged at 3.26 percent.


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