NZ dollar may fall as Fed poised to hike while RBNZ on hold

Monday 19th March 2018

The New Zealand dollar slipped and is poised to go lower with the focus firmly on this week's policy reviews at the US Federal Reserve and New Zealand's central bank, where the Fed is expected to hike while the Reserve Bank stays on hold.

The kiwi dollar traded at 72.10 US cents as at 5pm in Wellington from 72.19 cents as at 8am and 72.15 cents in New York on Friday. The trade-weighted index was at 74.27 from 74.28.

The Fed’s new chairman Jerome Powell is expected to raise the fed funds rate a quarter point to a range of 1.50 percent to 1.75 percent early Thursday New Zealand time and markets will be watching to see what sort of tone he sets, given it's his first-rate review. Key will be whether the Fed signals two or three more rate hikes this year. Shortly after the Fed's announcement, New Zealand acting Reserve Bank governor Grant Spencer is expected to keep the official cash rate at a record low 1.75 percent in his final decision before turning the helm over to Adrian Orr.

"We expect Thursday’s OCR review to contain few surprises. The OCR is expected to remain on hold at 1.75 percent, with the bottom line likely to remain unchanged: 'Monetary policy will remain accommodative for a considerable period,'" said Westpac Banking Corp in a note.

Against that backdrop, markets are waiting to see "what sort of push we are going to have to the downside as the US dollar strength story is back in vogue" said Ross Weston, a senior trader at Kiwibank. Weston said a key level for the kiwi is the 200-day moving average of around 71.80 US cents and there will be keen interest to see whether the Fed now signals three more rate hikes this year and whether Powell "comes across as hawkish or dovish."

Overall, Weston said he expects the kiwi to continue to "grind lower," in particular given "the upper band of the Fed's range is going to be the same as the official cash rate come Thursday morning." He underscored that based on interest rate differentials alone "the kiwi should be much lower."

He said this week's dairy auction is unlikely to ruffle many feathers despite the fact that markets are expecting prices to weaken further as the focus is firmly on the central banks.

The kiwi dollar traded at 51.76 British pence from 51.80 pence on Friday in New York. It traded at 58.75 euro cents from 58.78 cents.

The kiwi lifted to 93.61 Australian cents from 93.46 cents and fell to 4.5649 yuan from 4.5709 yuan. It declined to 76.27 yen from 76.61 yen.

New Zealand's two-year swap rate was unchanged at 2.26 percent and the 10-year swap rate lifted 2 basis points to 3.20 percent.

(BusinessDesk)

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