NZ dollar slips as greenback gains on US interest rates expectations

Wednesday 10th September 2014

The New Zealand dollar declined as investors gain confidence about a recovery in the US economy, increasing demand for the US dollar.

The kiwi slipped to 82.44 US cents at 8am in Wellington, from 82.57 cents at 5pm yesterday. The trade-weighted index weakened to 78.74 from 78.93 yesterday.

US 10-year Treasuries fell, pushing up yields, as investors become more optimistic about the outlook for the US economy and a higher interest rate track after a San Francisco Federal Reserve research report this week showed investors are pricing in more accommodative policy than the Federal Reserve itself suggested in June. Fed policy makers meet next week amid consistent evidence of the accelerating pace of growth in the world’s largest economy.

"The real story here is not so much the kiwi but the US dollar with US yields continuing to grow as we are seeing the global outlook on the US market beginning to improve and we are seeing some clear signs that the US economy is really getting back on its feet," said Stuart Ive, OMF senior dealer foreign exchange. "The US dollar will strengthen, alleviating some of the other currencies, particularly the kiwi and the Australian dollar."

Today, the kiwi has support at 82.15 US cents and faces resistance at 82.65 cents as traders await the Reserve Bank's decision on interest rates tomorrow. The benchmark rate is expected to remain on hold at 3.5 percent with the focus on whether plans for future interest rate increases will be pulled back in light of weaker inflation. The prospect of a longer pause in the tightening cycle has put the local currency under pressure.

The New Zealand dollar advanced to 89.51 Australian cents from 89.20 cents yesterday after a report yesterday showed Australian business confidence declined, and ahead of a consumer confidence survey today.

The kiwi slipped to 51.11 British pence from 51.37 pence, weakened to 63.66 euro cents from 64.12 cents, and dropped to 87.43 yen from 87.73 yen.

BusinessDesk.co.nz

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