NZ dollar drops after robust US jobs report; RBNZ looms

Monday 8th December 2014

The New Zealand dollar fell after figures showed the US added more jobs than expected last month, adding to evidence the world's biggest economy is robust enough to warrant higher interest rates and helping lift the greenback.

The kiwi fell to 76.99 US cents at 8am in Wellington from 77.04 cents in late New York trading on Friday and down from 77.78 cents in Asia at the end of last week. The trade weighted index dropped to 78.04 from 77.28 in Wellington on Friday.

The Dow Jones Industrial Average rose to near 18,000, rounding out its seventh week of gains and the US dollar staged its biggest advance in more than a year after Labor Department figures showed US firms added 321,000 jobs in November, beating the median forecast in a Reuters survey of 225,000. This week, the University of Michigan Consumer Sentiment Index is forecast to rise to 89.7, the highest since July 2007, according to a Bloomberg survey. The US Dollar Index, which tracks the greenback against a basket of currencies, is at a five year high.

The trend in accelerating US payrolls "is material enough to impact on the Fed policy tightening debate, ie, some Fed officials are likely to see the payrolls and earnings story as arguing for an earlier rather than later initial move," Imre Speizer, strategist at Westpac Banking Corp, said in a note. "Until (NZ) inflation appears and dairy prices start rising, we see the 0.7700 support area as vulnerable, a break then targeting 0.7500," he said, referring to the kiwi against the greenback..

The Reserve Bank may signal a longer pause in its tightening cycle this week in the face of annual inflation that's sitting at the bottom of the 1 to 3 percent band required by the policy targets agreement. Governor Graeme Wheeler will keep the official cash rate at 3.5 percent when he releases the monetary policy statement on Thursday, according to all 12 economists in a Reuters survey. He may signal a longer wait before raising interest rates via the bank's projected path for 90 day bank bills.

Before then, traders will be watching trade data in China today and, locally, third quarter manufacturing data, which is a component of gross domestic product. The market is also awaiting news out of Fonterra Cooperative Group's board meeting this week, which is expected to include a cut to the forecast milk payout of $5.30 per kilogram of milk solids.

The kiwi traded at 92.85 Australian cents from 92.76 cents in Wellington on Friday. It rose to 93.59 yen from 93.22 yen and traded at 62.71 euro cents from 62.79 cents. The New Zealand dollar fell to 49.43 British pence from 49.66 pence in late local trading on Friday.

BusinessDesk.co.nz

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