NZ dollar jumps as Fed chair Powell signals pause to rate hikes

Thursday 29th November 2018

The New Zealand dollar jumped three-quarters of a US cent after Federal Reserve chair Jerome Powell was seen as signalling a pause in interest rate hikes that have buoyed the greenback this year.

The kiwi climbed to 68.77 US cents as at 8am in Wellington from 67.94 cents yesterday. The trade-weighted index rose to 74.79 from 74.37 yesterday.

The yield on US 10-year Treasuries fell 1 basis point to 3.05 percent and the US dollar index declined 0.6 percent after Powell said the federal funds rate was just below neutral and that it will take time to understand the impact of the Fed's recent rate hikes.

The Fed's rate track has been pushing up global interest rates and underpinned the greenback, to the dismay of the White House, and President Donald Trump reiterated his criticism of that policy track in the lead-up to Powell's speech. The yield on US 10-year Treasuries is 41 basis points higher than that of its New Zealand equivalent, having been as much as 60 basis points higher earlier this month.

"The speech was taken to confirm that the Fed is likely to temper the path of rate hikes in December and that it is closer to pausing the tightening cycle than previously thought," ANZ Bank New Zealand economists Liz Kendall and Philip Borkin said in a note. "Currency markets jumped at Powell’s 'just below' neutral comment, sending the USD sharply lower."

Local data today include the ANZ business outlook, which has been showing weaker confidence and slowing activity among New Zealand firms. The Reserve Bank will also release updated TWI weightings today

The kiwi rose to 53.56 British pence from 53.32 pence yesterday and increased to 60.45 euro cents from 60.17 cents. The UK Treasury and Bank of England both warned of the detrimental impacts to the economy if MPs reject the Brexit deal.

The local currency traded at 93.95 Australian cents from 93.88 cents yesterday and climbed to a 13-month high 4.7818 Chinese yuan from 4.7240 yuan. It rose to 78.10 yen from 77.32 yen yesterday.

(BusinessDesk)

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