NZ dollar heads for 0.9% weekly drop ahead of Jackson Hole symposium

Friday 22nd August 2014

The New Zealand dollar is heading for a 0.9 percent weekly decline as investors prepare for the central bankers' symposium in Jackson Hole, Wyoming, where Federal Reserve chair Janet Yellen will deliver a speech.

The kiwi fell to 84.09 US cents at 5pm in Wellington from 84.82 cents last Friday in New York. It traded at 84.03 cents at 8am, up from 83.57 cents yesterday. The trade-weighted index is heading for a 0.5 percent weekly decline to 79.18 from 79.61 last week. It was at 78.91 yesterday.

The US dollar index, a measure of the greenback against a basket of currencies, has drifted from its highest level in almost a year as traders prepare for Yellen's speech after minute to the Federal Open Market Committee's latest policy meeting raised the prospect of rising interest rates in the US. That comes as falling commodity prices and a pause in New Zealand's tightening monetary policy cycle dim the attraction of the kiwi, which has benefited from relatively high yields.

"Is she going to dial back on the hawkish script we saw in the FOMC minutes? That will be the question" said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "If Yellen signals that rates are going up, then it's 'come on (US) dollar' and the kiwi/US falls towards 83 (US cents)."

The local currency came under pressure this week as lower growth forecasts from the Treasury, reduced inflation expectations and falling consumer confidence sap expectations the Reserve Bank will hike interest rates again this year. Traders have priced in 42 basis points over increases to the official cash rate over the next 12 months, according to the Overnight Index Swap curve.

The kiwi was little changed at 90.23 Australian cents at 5pm in Wellington from 90.32 cents yesterday, and rose to 87.23 yen from 86.76 yen. It increased to 63.28 euro cents from 63.09 cents yesterday, and gained 50.70 British pence from 50.43 pence.

BusinessDesk.co.nz

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