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NZ dollar falls as greenback, bond yields rise, Americans spend more

Tuesday 30th January 2018

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The New Zealand dollar fell against a broadly stronger greenback and rising bond yields on growing conviction the Federal Reserve will keep hiking interest rates.

The kiwi dropped to 73.15 US cents as at 8am in Wellington from 73.33 cents late yesterday. The trade-weighted index decreased to 74.51 from 74.60.

The yield on 10-year US Treasuries rose to about 2.71 percent, the highest since April 2014, while the US dollar index gained from its lowest level since December 2014 in a week that brings US President Donald Trump's first State of the Union address, Federal Reserve chair Janet Yellen's last policy meeting, nonfarm payrolls and measures of US consumer confidence, house prices, and ISM manufacturing. Meanwhile, concerns have abated that Trump is intent on battling other nations over trade and currency strength.

"With US bond yields pushing higher and Trump allaying some fears about the prospects of currency and trade wars, the USD has found some love," said Sharon Zollner, chief economist at ANZ Bank New Zealand. "But it is also the case that up near 74 (US) cents the NZD was looking stretched. With little on the local calendar this week, kiwi will remain at the whims of global themes."

Locally, trade data for December will be in focus today, while across the Tasman is Australian business confidence.

Tomorrow sees Trump's speech to the Congress, titled "Building a safe, strong and proud America" where he will set out his priorities for jobs, infrastructure, immigration, trade and national security, Reuters reported a senior official as saying. Trump has yet to detail his US$1.7 trillion election pledge to invest in US infrastructure projects but that type of spending would likely have a more direct impact on US economic growth than his tax reform package and help underpin a US dollar index hovering near a four-year low.

Added to that, US figures this week may show the world's biggest economy is stacking on jobs, while Janet Yellen's last policy meeting as chair of the US Federal Reserve this week will likely see more optimism about growth prospects and interest rate hikes from the central bank, he said.

The Federal Open Market Committee will conclude its two-day meeting on Wednesday, the last one with Yellen as chair before Jerome Powell takes over. While the FOMC is not expected to announce a rate hike on Wednesday, it is widely expected to raise its target rate during its March meeting. Meantime, US nonfarm payrolls probably grew by 180,000 jobs in the latest month while the unemployment rate fell to 4 percent, economists forecast.

The local currency fell to 90.34 Australian cents from 90.62 cents yesterday. It declined to 4.6331 yuan from 4.6360 yuan, traded little changed at 59.08 euro cents and rose to 51.99 British pence from 51.86 pence. It traded little changed at 79.73 yen.


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