NZ dollar drops after Fed keeps December rate hike alive; RBNZ looms

Thursday 29th October 2015

The New Zealand dollar dropped after the US Federal Reserve signalled it could hike interest rates at its December meeting and traders await the Reserve Bank of New Zealand's rate decision this morning.

The kiwi fell as low as 66.39 US cents after the Fed's 7am statement, and was trading at 66.42 cents at 8am in Wellington, from 67.25 cents late yesterday. The trade-weighted index declined to 72.10 from 72.73 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, rose to its highest level in more than two months after the Federal Open Market Committee left interest rates unchanged as expected following a two-day meeting. But it dropped reference to concern about recent global economic factors pushing down inflation, and was more upbeat in its assessment of household spending and business investment. That prompted traders to increase their bets for a December hike to 45 percent, from 30 percent before today's announcement.

"The ink is still drying on the FOMC’s announcement this morning, but the initial interpretation is that the possibility of 2015 lift-off is still entirely possible," ANZ Bank New Zealand senior economist Philip Borkin and senior FX strategist Sam Tuck said in a note. "The US dollar strengthened after the FOMC left the December meeting as live."

The local focus now turns to the RBNZ interest rate decision scheduled for release at 9am in Wellington.

ANZ said it expects the benchmark interest rate to remain at 2.75 percent, with a continued easing bias. The kiwi will probably trade between 65.40 US cents and 68.20 cents today, according to ANZ.

The New Zealand dollar slipped to 93.80 Australian cents from 94.44 cents yesterday, weakened to 43.54 British pence from 43.93 pence, fell to 80.55 yen from 80.92 yen, declined to 4.2248 yuan from 4.2755 yuan, and was little changed at 60.90 euro cents from 60.96 cents.

BusinessDesk.co.nz

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