NZ dollar gains after weak US data weighs on tapering expectations

Tuesday 7th January 2014

The New Zealand dollar advanced after weaker-than-expected economic data in the US tempered expectations over how fast the Federal Reserve may start unwinding its monetary stimulus programme.

The kiwi rose to 83 US cents at 8am in Wellington, from 82.56 cents at 5pm yesterday. The trade-weighted index increased to 78.41 from 78.14 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, dropped after the Institute of Supply Management report showed the pace of growth in the US services sector slowed for a second month in December with business activity expanding at a lower rate and new orders contracting. That may weigh on expectations for how fast the Fed will taper its bond-buying programme which will this month be reduced by US$10 billion to US$75 billion.

"The USD was generally weaker overnight as the ISM non-manufacturing survey declined," David Croy, head of markets research for ANZ Bank New Zealand, said in a note. "Fed tapering is 'in the bag' but how quickly quantitative easing is eventually unwound does depend on how the US economy evolves."

The Institute for Supply Management said its services index fell to 53 last month from 53.9 in November, below expectations in a Reuters poll for a reading of 54.5 and the lowest reading since June. The gauge of business activity dipped to 55.2 from 55.5 and the read on new orders contracted to 49.4 from 56.4, however the employment gauge rose to 55.8 from 52.5.

The employment reading bodes well for US non-farm payrolls data on Friday, which is a key focus for the Fed, Croy said.

The kiwi is likely to trade between 82.60 US cents and 83.50 cents today, he said.

With no data scheduled on the New Zealand calendar today, traders will be keeping an eye on Australian trade data for November, scheduled for release at 1:30pm New Zealand time.

The New Zealand dollar touched a two-week high of 92.64 Australian cents early this morning, and was trading at 92.48 cents at 8am from 92.26 cents at 5pm yesterday.

The kiwi is likely to trade between 92.10 Australian cents and 92.90 cents today, Croy said.

The local currency advanced to 60.82 euro cents from 60.77 cents yesterday ahead of a report on December inflation today leading into the European Central Bank meeting on Thursday. The kiwi increased to 50.55 British pence from 50.45 pence yesterday and rose to 86.46 yen from 86.18 yen.

BusinessDesk.co.nz

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