NZ dollar rises above 70 US cts as Fed hikes as expected, US inflation comes in weaker

Thursday 14th December 2017

The New Zealand dollar rose above 70 US cents after the Federal Reserve hiked interest rates as expected, rounding out a busy session of American news including weaker-than-expected inflation, progress on tax cuts and a Democrat win in Alabama.

The kiwi dollar gained to 70.14 US cents as at 8:15am in Wellington, the highest in almost two months, from 69.54 cents late yesterday. The trade-weighted index jumped to 74.02 from 73.62.

The Fed hiked the federal funds rate to a target range of 1.25 percent to 1.50 percent and left intact its projection of three increases in 2018 while projecting a pickup in economic growth. Meanwhile, the US Senate reached a deal on tax reform with President Donald Trump saying he will support a cut to the corporate rate to 21 percent from 35 percent. Among other news, consumer prices rose 0.1 percent in November, excluding food and energy, while core inflation was 1.7 percent on an annual basis - weaker than the market had expected.

"The USD weakened a touch and bonds rallied in the aftermath of a slight miss on US core CPI in November," said Con Williams, rural economist at ANZ Bank New Zealand. "It left markets feeling dovish going into the FOMC announcement and that supported risk appetite."

In a blow to Trump, Democrat Doug Jones won a Senate victory in Alabama against Republican candidate Roy Moore, who the president had supported, narrowing the Republican majority in the Senate to 51-49.

In New Zealand today, traders will be watching the half-year fiscal and economic update and the budget policy statement for the Crown's latest economic forecasts and details of how it will fund its policy programme.

"While projected operating surpluses will be smaller and debt levels a little higher, we think the fiscal projections will still paint a reasonably positive picture overall," Williams said. "That should correspond to a lift in bond issuance."

The local currency advanced to 52.35 British pence from 52.18 pence ahead of the Bank of England's policy meeting and rose to 59.39 euro cents from 59.15 cents before the European Central Bank meeting. Both central banks are expected to keep interest rates unchanged.

The kiwi rose to 91.94 Australian cents from 91.77 cents. It increased to 79.03 yen from 78.77 yen and gained to 4.6340 yuan from 4.6031 yuan.

(BusinessDesk)

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