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NZ dollar falls to 4-month low as US jobs growth adds to view Fed will hike again in June

Thursday 3rd May 2018

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The New Zealand dollar fell to its lowest level in more than four months as further signs of a robust US jobs market stoked expectations that the Federal Reserve will raise interest rates again next month.


The kiwi dollar traded at 69.88 US cents as at 8am in Wellington and earlier touched 69.81 cents, the lowest since late December, from 70.12 cents late yesterday. The trade-weighted index fell to 73.12 from 73.25.


The Federal Open Market Committee kept the fed funds rate unchanged as expected in a range of 1.5 percent to 1.75 percent at the end of its two-day policy meeting and said it expected inflation to hold near its 2 percent target, even hinting it would tolerate an overshoot with a reference to its target being "symmetric". Meanwhile, the ADP private-sector payroll data for April showed the US economy added 204,000 jobs, beating expectations.


"The FOMC didn’t shift the dial on the policy outlook a great deal this morning, so our view remains unchanged in that we expect a more thorough test below 70 cents to eventuate in the near-term," said Miles Workman, an economist at ANZ Bank New Zealand, in a note.


He said the US dollar was also helped by figures showing economic growth in the euro-area slowed in the first quarter. The kiwi traded at 58.50 euro cents from 58.42 cents.


The TWI is now 2.5 percent below the level the Reserve Bank had projected as an average for the second quarter of 75 in its February monetary policy statement, suggesting the tradables sector may become less of a force in keeping inflation low. 


Tradables CPI, which includes goods and services that compete with international rivals, fell 0.1 percent in the first quarter and slipped 0.4 percent on the year, keeping headline inflation near the bottom of the bank's 1 percent-to-3 percent range.  The Reserve Bank's next interest rate review is on May 10, the first for new governor Adrian Orr, when he is expected to keep intact its projection for rates to remain low for the foreseeable future.


In New Zealand today, traders will be watching for the ANZ Commodity Price Index while across the Tasman, trade data and building approvals are expected.


The kiwi traded at 4.4457 yuan from 4.4593 yuan yesterday, when figures showed the Caixin China manufacturing purchasing managers' index edged up to 51.1 in April from 51.0 in March. The New Zealand dollar fell to 93.30 Australian cents from 93.42 cents and traded at 51.51 British pence from 51.52 pence. It fell to 76.80 yen from 76.95 yen.



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