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NZ dollar falls as greenback surges on Fed minutes pointing to June rate hike

Thursday 19th May 2016

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The New Zealand dollar fell as the US dollar surged after the Federal Reserve minutes to its last meeting stoked speculation for an interest rate hike next month.

The kiwi sank to 67.31 US cents at 8am in Wellington, from 67.90 cents at 5pm yesterday. The trade-weighted index declined to 72.46 from 72.79.

The US dollar index, which measures the greenback against a basket of currencies, jumped to its highest in five weeks after the release at 6am New Zealand time of the Fed minutes from its April policy meeting, which showed the central bank is more likely to raise interest rates next month than traders had thought. The minutes said a June hike was "likely" if second-quarter growth, inflation and labour data improved. Traders increased their bets for a June rate hike to 34 percent, up from 19 percent earlier in the day.

"The minutes were more hawkish than most had expected," Bank of New Zealand senior market strategist Kymberly Martin said in a note. "Many currencies were fairly range-bound overnight, ahead of the release. Subsequently, all have plunged as the US dollar index surged."

The exception is the British pound, which strengthened after a poll in the Evening Standard newspaper indicated sentiment in the upcoming referendum on EU membership had tipped in favour of the ‘remain’ camp, where support grew to 55 percent from 49 percent. Those favouring leaving the EU slipped to 37 percent from 39 percent.

The kiwi has support at its May lows at 67.20 US cents, said the BNZ's Martin.

In New Zealand today, the ANZ-Roy Morgan consumer confidence survey is published at 1pm.

Tonight, traders will be looking for further clues on the US interest rate outlook in speeches from Fed vice chair Stanley Fischer and Fed Bank of New York President William Dudley.

The New Zealand dollar dropped to 46.13 British pence from 47.02 pence, fell to 4.4001 yuan from 4.4352 yuan, and slid to 60 euro cents from 60.16 cents. It advanced to 74.19 yen from 74.02 yen, and was little changed at 93.14 Australian cents from 93.17 cents.

BusinessDesk.co.nz



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