NZ dollar gains on concerns about pace of US Fed rate hikes

Tuesday 2nd February 2016

The New Zealand dollar gained against US dollar weakness amid speculation the Federal Reserve may not hike rates as fast as previously expected.

The kiwi rose to 65.12 US cents at 8am in Wellington from 64.74 cents at 5pm yesterday. The trade-weighted index increased to 71.46 from 71.19 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, declined after Institute for Supply Management data showing the pace of growth in the US manufacturing sector contracted for a fourth straight month in January. That added to concerns that the Fed might slow its plans for interest rate hikes this year, after the Bank of Japan on Friday eased monetary policy and Chinese data yesterday showed the nation’s official factory gauge fell to the lowest level in three years in January, a record sixth straight month of contraction.

"The NZD/USD remains stuck near the 65 US cent level," ANZ Bank New Zealand senior economist Philip Borkin and senior foreign exchange strategist Sam Tuck said in a note. "Last night’s weaker US ISM continues the run of softer US data that is arresting the New Zealand dollar's attempts to move lower, while the weaker Chinese PMIs ensure the NZD can’t rally too far."

ANZ noted comments from Federal Reserve vice chairman Stanley Fisher that :“If these [global] developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States.“ He added that: “But we have seen similar periods of volatility in recent years that have left little permanent imprint on the economy.”

Fed officials indicated in December that they expected to hike rates four times this year.

ANZ expects the kiwi to trade between 64.60 US cents and 65.60 cents today.

In New Zealand today, the ANZ monthly commodity price index is published at 1pm, while in Australia, the nation's central bank releases its latest monetary policy decision at 4:30pm New Zealand time.

The New Zealand dollar rose to 91.80 Australian cents from 91.61 cents yesterday, advanced to 59.81 euro cents from 59.66 cents, increased to 78.88 yen from 78.48 yen, and gained to 4.2835 yuan from 4.2589 yuan. It slipped to 45.21 British pence from 45.41 pence yesterday after a report showed UK manufacturing rebounded in January to a three-month high.

BusinessDesk.co.nz

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