NZ dollar follows Wall Street, commodities higher as investors reassess US rate track

Friday 23rd February 2018

The New Zealand dollar gained, following stocks on Wall Street and commodity prices higher as investors bet the Federal Reserve will stick to three rate hikes this year, based on the tone of its last policy meeting minutes.

The kiwi rose to 73.43 US cents as at 8am in Wellington from 73.08 cents yesterday. The trade-weighted index increased to 75.41 from 75.21 yesterday.

Stocks on Wall Street gained, with the Dow Jones Industrial Average recently up 0.9 percent, and the Thompson Reuters CRB index of 19 commonly traded raw materials rose 0.5 percent as investors concluded yesterday's minutes to the Jan. 30-31 Federal Open Market Committee amounted to no change, meaning three hikes to the federal funds rate are on the cards for 2018. Growing inflationary pressures and a robust US economy had some investors betting there would be a fourth rate hike this year, which would stoke demand for the US dollar, however St Louis Fed president James Bullard warned too many hikes could slow growth.

"US equities are higher, bond yields a bit lower, and the US dollar weaker as markets have retraced the moves seen after the FOMC minutes yesterday (which were initially interpreted as hawkish)," Bank of New Zealand interest rate strategist Nick Smyth said in a note.

Local data today include fourth-quarter retail sales, which may attract some attention, although the US dollar remains the overriding influence on the kiwi dollar, and new Fed chair Jerome Powell will deliver his semi-annual testimony to Congress next week.

The kiwi traded at 59.54 euro cents from 59.52 cents yesterday after minutes to the last European Central Bank policy review showed an unchanged benign tone from the January press conference. The local currency was little changed at 52.59 British pence from 52.54 pence yesterday.

The New Zealand dollar slipped to 93.55 Australian cents from 93.72 cents yesterday and rose to 4.6607 Chinese yuan from 4.6388 yuan. It traded at 78.41 yen from 78.44 yen yesterday.

(BusinessDesk)

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