NZ dollar 'in holding pattern' ahead of FOMC, after gaining with dairy auction

Wednesday 16th September 2015

The New Zealand dollar rose after the latest GlobalDairyTrade auction and has held in a narrow range since then, with traders unwilling to make big bets ahead of the results of the US Federal Open Market Committee's deliberations on Friday.

The kiwi traded at 63.48 US cents, little changed from the start of the day and up from 63.10 cents late yesterday. The trade-weighted index rose to 68.72 from 68.28 yesterday.

The Fed is moving closer to raising interest rates for the first time in nine years, having kept rates near zero to support the world's biggest economy in the aftermath of the global financial crisis. Amid signs of an improving US labour market, this week's FOMC meeting had been tipped as a likely start date for rate hikes, but more recently Fed officials have been increasingly vague about the timing and many in the financial markets have pushed back their expectations.

"That dislocation between people's expectations and what we're seeing is what's creating so much uncertainty," said Mitchell McIntyre, senior corporate dealer at NZ Forex. "I don't think they will be hiking this week and if that's the case we're going to see the Aussie and the kiwi rally, everything rally against the US dollar."

He said the kiwi could rise as high as 65 US cents if there's no move by the Fed, but it probably won't climb much higher because there will be that much more expectation a US hike is looming.

The local dollar didn't move much after figures showed a current account deficit in the second quarter, although revisions meant the annual gap amounted to 3.5 percent of gross domestic product, from a revised-down 3.4 percent in the first quarter. Second-quarter GDP is scheduled for release tomorrow, with a rebound expected from the first-quarter's 0.2 percent pace, when growth was slowed by drought and a temporary drop in oil production.

The kiwi had risen earlier after the GDT average winning prices jumped 16.5 percent to US$2,568 in the latest GlobalDairyTrade sale, the biggest increase in five years. Whole milk powder soared 20.6 percent to US$2,495 a tonne, stoking speculation that Fonterra Cooperative Group may revisit its forecast payout for the current season of $3.85 per kilogram of milk solids, a rate that's below the cost of production for many farms and is expected to slow growth in the broader economy.

The kiwi rose to 4.0416 yuan from 4.0138 yuan yesterday and advanced to 56.19 euro cents from 55.71 cents. It gained to 41.33 British pence from 40.87 pence and increased to 76.27 yen from 75.63 yen.

The kiwi dollar rose to 88.83 Australian cents from 88.46 cents.

The two-year swap rate rose 1 basis point to 2.71 percent and 10-year swaps rose 1 basis point to 3.62 percent.

BusinessDesk.co.nz

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