NZ dollar declines on greenback strength following Fed rate hike

Friday 18th December 2015

The New Zealand dollar declined amid greenback strength after the Federal Reserve raised interest rates and kept its outlook for further hikes next year intact.

The kiwi fell to 67.03 US cents at 8am in Wellington, from 67.25 cents at 5pm yesterday. The broader trade-weighted index was unchanged at 73.40 after upbeat local growth data.

The US dollar index, which measures the greenback against a basket of currencies, touched a two-week high after the Fed raised interest rates for the first time in almost a decade, increasing the lure of US dollar assets. While Fed chair Janet Yellen emphasised that future tightening would be gradual, the Fed's forecast for future interest rates, known as the "dot plot", continued to signal four quarter-point rate hikes next year.

"The message from the Fed was one of continued US dollar strength, and the New Zealand dollar followed other currencies lower in a broad US dollar strengthening move," ANZ Bank New Zealand chief economist Cameron Bagrie and senior foreign exchange strategist Sam Tuck said in a note. "Solid growth momentum leaves the New Zealand dollar in no man’s land versus the US dollar (hiking Fed) but strong on the crosses."

ANZ expects the kiwi to trade between 66.70 US cents and 67.50 cents today.

The local focus will be on the ANZ business confidence survey scheduled for release at 1pm.

Elsewhere, the Bank of Japan isn't expected to change policy at its review today.

The New Zealand dollar touched a six-month high of 45.36 British pence overnight, although it was little changed at 45.03 pence at 8am from 45.01 pence yesterday. Even though UK retail sales surged, traders are betting wages need to rise before the Bank of England would look to raise interest rates, ANZ said.

The local currency gained to 94.12 Australian cents from 93.72 cents yesterday, slipped to 82.29 yen from 82.40 yen, dropped to 4.3450 yuan from 4.3588 yuan, and was little changed at 62.03 euro cents from 62.04 cents.

BusinessDesk.co.nz

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