NZ dollar hovers below 73 US cents as greenback finds favour on rate outlook

New Zealand Stock Markets

The New Zealand dollar held below 73 US cents amid growing expectations the US Federal Reserve will hike rates more aggressively this year after solid jobs data in contrast to the Reserve Bank which will likely reiterate it won't raise rates anytime soon. 

The kiwi traded at 72.91 US cents as at 5pm in Wellington versus 72.92 US cents as at 8am in Wellington and 73.01 cents on Friday in New York. The trade-weighted index was at 74.58 from 74.69 last week.

The greenback got a boost when the US non-farm payrolls report showed wages growing at their fastest pace in more than eight-and-a-half years, leading futures markets to price in the risk of three or even more rate rises from the Federal Reserve this year as inflation expectations were stoked.

At the same time, New Zealand's Reserve Bank is tipped to keep the official cash rate unchanged and retain a flat outlook at this Thursday's review.

New Zealand's OCR at 1.75 percent compares to the fed funds rate target range of 1.25-to-1.5 percent

The Reserve Bank's first monetary policy review of the year on Thursday will be key for markets, said Slabbert.


Investors will also be taking profits as the New Zealand dollar has "been punching a little above its weight, given the fundamentals and the rate scenario," he said.

Data today from Barfoot & Thompson added to the view the heat is coming out of the housing market.

According to the realtor, the number of houses sold in Auckland fell 5.7 percent in January from a year earlier, even as prices edged lower, with the pipeline of available properties in the country's biggest city swelling to a six-year high.

New Zealand markets are closed tomorrow for the Waitangi Day public holiday. Ahead of the RBNZ, investors will be also be watching December quarter employment figures and the latest GlobalDairyTrade auction on Wednesday.

The local currency traded at 80.16 yen from 80.42 yen on Friday in New York and at 91.94 Australian cents from 92.08 cents. It traded at 58.52 euro cents from 58.58 cents last week and was almost unchanged at 51.64 British pence from 51.69 pence last week. The kiwi fell to 4.5914 Chinese yuan from 4.5991 yuan last week.

New Zealand's two-year swap rate rose 1 basis point to 2.17 percent, while 10-year swaps rose 4 basis points to 3.31 percent.

NZ dollar may run out of puff as interest rate differential with US narrows

New Zealand Stock Markets

The New Zealand dollar is heading for a 0.9 per cent gain against the greenback this week but may run out of steam as investors pay more attention to a narrowing interest rate differential with the US.

The kiwi rose to 73.38 US cents as at 5pm in Wellington from 72.75 cents on Friday in New York last week, in a volatile week where it soared on jawboning from the US Treasury secretary before slumping on softer-than-expected inflation. 

The trade-weighted index is heading for a 0.3 per cent weekly decline to 74.69 and is down from 75.02 yesterday.

The local currency has gained 3.5 per cent so far this year as heightened political uncertainty has left the greenback out of favour with a brief US federal government shutdown, introduction of trade tariffs and looming debt ceiling.

The greenback came under greater scrutiny this week when Treasury Secretary Steven Mnuchin said a weaker currency was good for trade, comments US President Donald Trump today said were taken out of context when advocating a stronger greenback under his administration.

Trump's speech to the World Economic Forum in Davos will be a highlight for investors in the Northern Hemisphere session.

For all that, the US economy continues to report robust growth and corporate tax cuts have underpinned a strong earnings season, helping push stocks on Wall Street to record highs and removing barriers to the Federal Reserve raising interest rates this year.

At the same time, New Zealand's Reserve Bank is less likely to lift the official cash rate from its record low 1.75 per cent until 2019 after fourth-quarter inflation data this week was well below expectations, prompting two bank economist teams to push out their forecasts for tighter monetary policy.

ASB's Kelleher said at current levels the kiwi looks like a 'sell' at around 73.50/74.50 US cents over the medium term.

New Zealand two-year swap rates were unchanged at 2.17 per cent, and are down from 2.25 per cent at the end of last week, while 10-year swaps fell 2 basis points to 3.21 per cent, and are down from 3.28 per cent last Friday.

The local currency traded at 91.04 Australian cents from 91.18 cents yesterday and fell to 4.6421 Chinese yuan from 4.6702 yuan. It decreased to 59.01 euro cents from 59.36 cents yesterday and traded at 51.71 British pence from 51.65 pence. It fell to 80.22 yen from 80.48 yen yesterday.