NZ dollar weakens as stronger US data signals Federal Reserve may start tapering in September

Friday 30th August 2013

The New Zealand dollar weakened as stronger data out of the US reassured investors that the Federal Reserve will probably start winding back its stimulus programme next month.

The kiwi fell to 77.73 US cents at 8am in Wellington from 78.32 cents at the 5pm market close yesterday. The trade-weighted index slipped to 73.71 from 74.01 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, gained after data showed the US economy accelerated in the second quarter and the number of Americans filing new claims for jobless benefits fell last week. The strength in the world's largest economy cemented expectations the Fed will soon start easing back its US$85 billion-a-month bond-buying program.

"The kiwi is a tad weaker this morning on the back of positive US data, stronger GDP figure and a drop in the weekly jobless claims which shows that the US labour market is improving," said Peter Cavanaugh, client advisor at Bancorp Treasury. "Those two bits of data have given markets a little bit more confidence that the Fed will start its tapering at its Sept. 18 meeting."

US gross domestic product increased at a 2.5 percent annualised pace in the second quarter, up from an initial estimate of 1.7 percent, according to Commerce Department data. It exceeded the 2.2 percent rate predicted by economists polled by Reuters and Bloomberg News.

Separately, the number of Americans filing new claims for unemployment benefits fell 6,000 to 331,000 last week, underpinning recent signs of a cautious recovery in the labour market-a key gauge for the Fed to determine the future of its stimulus programme.

Traders will be eyeing reports on the Chicago manufacturing and Michigan consumer confidence tonight for indications of further strength in the US economy ahead of next week's US manufacturing and payrolls data.

During the weekend, China publishes its official manufacturing PMI report.

In New Zealand today, there are reports on July building permits and private sector credit.

The New Zealand dollar weakened to 87.00 Australian cents at 8am in Wellington from 87.27 cents at 5pm yesterday. The local currency slid to 76.37 yen from 76.57 yen yesterday ahead of reports data on national and Tokyo inflation and industrial production. The kiwi edged down to 58.70 euro cents from 58.80 cents yesterday and fell to 50.11 British pence from 50.43 pence.

BusinessDesk.co.nz

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