NZ dollar hovers near 3-week low ahead of GDP, Fed statement

Monday 17th December 2018

The New Zealand dollar stuck to a tight range near a three-week low ahead of key events later this week.

The kiwi traded at 67.91 US cents at 5pm versus 67.85 US cents at 8am in Wellington and 67.96 cents in Asia last week. The trade-weighted index was at 74.38 from 74.46 last week.

Kiwi dollar trading was quiet in Asia as investors await the US Federal Reserve's last policy meeting of the year followed by New Zealand's third-quarter gross domestic product data on Thursday.

While the Fed is widely expected to lift rates at this week's meeting, investors will be waiting to see if the Fed eases up on its plans for 2019.

According to its latest projections in September, the median view among policymakers was for three rate hikes in 2019. Recent commentary from Fed officials, including Chair Jerome Powell, has pointed to a softer stance. In late November Powell said interest rates were "just below" what the Fed considered neutral.

Ross Weston, head of trading at Kiwibank, said the US dollar will likely fall if the so-called dot plot is revised lower. The dot plot basically charts where Fed members see interest rates going during the next few months.

"If that gains momentum it will be supportive for the kiwi," Weston said.

However, also on Thursday, Statistics New Zealand will publish third-quarter GDP data. A Bloomberg poll showed that economists expect the economy to have expanded 0.6 percent on quarter after growing a surprising 1.0 percent in the second quarter.

Weston said the kiwi is likely under some pressure now as investors take positions ahead of that data.

"The market is setting up for a weaker number," he said.

Weston said there may also be some overhang after the central bank outlined plans for lenders to hold greater capital reserves, which is seen as boosting borrowing costs and slowing the economy.

The kiwi rose to 94.61 Australian cents from 94.31 cents last week and increased to 4.6837 Chinese yuan from 4.6795 yuan. It traded at 53.97 British pence from 53.82 pence last week and edged up to 60.03 euro cents from 59.93 cents. The local currency traded at 77.05 yen from 76.86 yen last week.

New Zealand's two-year swap rate fell 2 basis points to 2.06 percent; the 10-year swaps were down 1 basis point at 2.75 percent.

(BusinessDesk)

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