NZ dollar rises above 71 US cents on lack of urgency from Fed to hiking rates

Thursday 28th July 2016

The New Zealand dollar rose above 71 US cents for the first time since the start of last week after traders took the Federal Reserve's latest policy review as a signal that it won't rush to raise interest rates until later this year.

The kiwi rose to 71.11 US cents as at 5pm in Wellington from 70.38 cents late yesterday. The trade-weighted index rose to 76.02 from 75.50.

The Fed left its target interest rate in a range of 0.25 percent to 0.5 percent as expected and said near-term risks to the US economic outlook had diminished and the labour market had improved, suggesting it will raise rates later this year. The Fed statement kept alive bets that the central bank could raise rates as soon as September, although a Reuters survey suggests it will wait until December. Even if the Reserve Bank of New Zealand cuts interest rates as expected next month, the official cash rate will still be a standout at 2 percent compared to benchmark rates in major developed economies.

"As far as the Fed goes and reaction to that, really it's just confirmation that we're not going to see rapid rate hikes in the US," said Nick Tvedt, senior corporate FX dealer at NZForex. "The kiwi in a relative sense still looks good," he said, adding that some forecasters got "a bit overcooked" in predicting there could be more than two rate cuts in New Zealand this year, which now looks unlikely.

The kiwi gained to 74.5 yen from 74.16 yen following Japan's announcement of a stimulus package of more than 28 trillion yen (US$265 billion), bigger than expected, which has stoked speculation the Bank of Japan will be under pressure to unveil more easing measures tomorrow.

It gained to 94.42 Australian cents from 93.98 cents after figures yesterday showed Australia's consumer prices remained weak in the second quarter, keeping alive expectations the Reserve Bank of Australia will cut the cash rate a quarter point to 1.5 percent next week. Australia's trimmed mean CPI rose 1.7 percent from a year ago compared to economist expectations of 1.5 percent.

The kiwi rose to 4.7366 yuan from 4.6947 yuan and gained to 53.93 British pence from 53.76 pence. It rose to 64.25 euro cents from 63.99 cents.

New Zealand's two-year swap fell about 1 basis point to 2.02 percent and 10-year swaps fell 2 basis points to 2.44 percent.

BusinessDesk.co.nz

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