NZ dollar may extend rally as Yellen's caution keeps investors wary on greenback

Thursday 31st March 2016

The New Zealand dollar may extend its gain after touching a nine-month high after Federal Reserve chair Janet Yellen's caution over the path of future interest rate increases keeps investors wary about holding the greenback.

The kiwi climbed as high as 69.64 US cents and traded at 69.02 US cents at 5pm in Wellington from 68.45 cents yesterday. The trade-weighted index rose to 72.94 from 72.56.

The greenback sank against most currencies after Yellen urged caution on future rate hikes on Tuesday in her first public speech since the Fed scaled back its projected increases for the year in its March policy review. Traders have dialled back their expectations on rate hikes, and will want to see a strong US non-farm payrolls report on Friday to reignite demand for the greenback.

"Because of Yellen you now need a big payrolls surprise to stop the rot in the US dollar - a number matching consensus just won't do it," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "The kiwi's break above 69 is very important; if sustained overnight then I'm targeting 72 over the next few weeks."

The kiwi is heading for a 1.1 percent increase against the greenback in the March quarter but a 1.8 percent decline on a trade-weighted basis having fallen against the Australian dollar since the start of the year.

Local data showed New Zealand business confidence fell in March, with the agricultural sector the most pessimistic as weak dairy prices look set to continue, and a separate survey showed farmer confidence dropped in the first quarter of the year with sheep and beef farmers as gloomy as their dairy counterparts.

New Zealand's two-year swap rate slipped one basis point to 2.19 percent at 5pm in Wellington, while 10-year swaps decreased two basis points to 2.97 percent.

The local currency increased to 90.12 Australian cents from 89.76 cents yesterday and rose to 4.4628 Chinese yuan from 4.4390 yuan. It gained to 60.98 euro cents from 60.62 cents yesterday and climbed to 48.13 British pence from 47.61 pence. It was up to 77.56 yen from 76.99 yen yesterday.

BusinessDesk.co.nz

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