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NZ dollar falls against broadly stronger greenback as US bond yields rise

Friday 20th April 2018

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The New Zealand dollar fell against a broadly stronger greenback in the face of rising yields on US Treasuries and expectations the US economy is strong enough to see the Federal Reserve continue hiking interest rates this year.


The kiwi dollar declined to 72.70 US cents as at 8am in Wellington, and earlier fell as low as 72.58 cents, the lowest in almost two weeks, from 73.23 cents late yesterday. The trade-weighted index dropped to 74.63 from 74.92.


The yield on 10-year US Treasuries climbed as high as about 2.93 percent overnight, a level it has only topped a handful of times this year and the US dollar index rose as high as 89.95, a week-high.


The consumers price index rose 0.5 percent in the three months to March 31, while annual inflation was 1.1 percent, Statistics New Zealand said. The result was in line with the median of 12 economists surveyed by Bloomberg and compares to the Reserve Bank's quarterly projection of 0.6 percent and 1.1 percent. While traders debate whether the Fed will hike rates two or three more times this year, New Zealand first-quarter inflation data yesterday, with annual inflation slowing to a relatively tepid 1.1 percent, reinforced expectations the Reserve Bank won't raise interest rates anytime soon.


"We didn’t think there much in the CPI report to materially shift our expectations for monetary policy," said Nick Smyth, interest rate strategist at Bank of New Zealand, in a note. "The NZD has since declined to around 0.7265, around a two week low, in sympathy with the broader strength in the USD and decline in equities."


Smyth said a Radio NZ interview with RBNZ governor Adrian Orr before the inflation report yesterday "didn’t give much away about his policy intentions and there wasn’t much immediate market reaction."


The kiwi rose to 94.01 Australian cents from 93.77 cents yesterday. It declined to 4.5624 yuan from 4.5866 yuan and fell to 58.87 euro cents from 59.13 cents. The kiwi rose to 78.05 yen from 78.63 yen and traded at 51.58 British pence from 51.56 pence yesterday. The local dollar fell as low as 51.18 pence overnight before recovering as the market digested what were seen as dovish comments from Bank of England governor Mark Carney.



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