NZ dollar drops as Fed pares future rate hike projections; GDP looms

Thursday 20th December 2018

The New Zealand dollar dropped about a quarter of a US cent after the Federal Reserve raised interest rates and signalled a slightly slower pace of increases next year.

The kiwi fell to 68.28 US cents as at 8am in Wellington, from 68.52 cents immediately before the Fed announcement and down from 68.64 cents yesterday. The trade-weighted index declined to 74.67 from 74.92 yesterday.

The Federal Open Market Committee lifted the federal funds rate to a band of 2.25-2.5 percent, in line with expectations. However, it said it still sees a need for further gradual increases, with two hikes predicted in 2019 compared to the three increases projected in September. That was in line with the expectations of analysts, who were prepared for a softer outlook after speeches from Fed officials last month were more cautious about the economy.

Locally, third-quarter gross domestic product figures today are the last major event for the year. Economists forecast economic growth was about 0.6 percent in the September quarter, slowing from a 1 percent quarterly pace in June.

"This morning’s FOMC decision and local Q3 GDP figures certainly have the potential to determine how the NZD will trade into the end of the year," ANZ Bank New Zealand economists Liz Kendall and Philip Borkin said in a note. "The kiwi has been somewhat range-bound over recent times but there could easily be some more excitement today."

Other local data today include November merchandise trade and credit card spending, while in Australia November employment figures are in view.

The kiwi rose to 95.63 Australian cents from 95.41 cents yesterday and decreased to 4.7043 Chinese yuan from 4.7297 yuan. It dropped to 76.61 yen from 77.10 yen yesterday and traded at 54.01 British pence from 54.17 pence. The local currency fell to 59.87 euro cents from 60.30 cents yesterday.

(BusinessDesk)

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