Kiwi heads for 1.5% weekly decline as final vote tally looms

Recent solid data out of the US and comments from Federal Reserve officials have increased expectations of a US rate hike in December.

The New Zealand dollar is heading for a 1.5 percent fall this week ahead of tomorrow's final vote count and as hopes for US tax reforms and rate hikes push up the greenback.

The kiwi traded at 70.96 as a 5pm in Wellington versus 71.13 cents as at 8am and from 71.53 cents yesterday. It traded at 72.05 cents in New York last Friday. The trade-weighted index declined to 75.23 from 75.55 yesterday.

The greenback got a lift Friday after the Republican-controlled House of Representatives narrowly approved a fiscal 2018 spending blueprint containing a legislative tool enabling a tax bill to pass by a simple majority vote in the Senate, where they hold 52 of 100 seats, according to Reuters. The vote was viewed as being one step nearer to the tax reform. The focus is also on US job data for September, which is expected to show the world's biggest economy only added 90,000 jobs last month versus 156,000 in August, after the hurricane impact.

"They have placed the bar so low it's making a beat quite possible and if we have a miss they will just attribute it to noise around the weather," said Sheldon Slabbert, a trader at CMC Markets. "Notwithstanding some noise around the number, I think the market will just revert to the over-riding themes at the moment, which are tax cuts and Fed hikes."

Recent solid data out of the US and comments from Federal Reserve officials have increased expectations of a US rate hike in December. Against a backdrop where the rate differential narrows between the US and New Zealand, the kiwi will get squeezed, said Slabbert.

New Zealand's two-year swap rate rose 1 basis point to 2.20 percent, and 10-year swaps rose 2 basis point to 3.25 percent.

Domestically, investors will be watching for the final general election vote count tomorrow, meaning political parties will be able to kick off formal negotiations to form a government. Slabbert said if the eventual government is led by the incumbent National Party it will be positive for the kiwi whereas if it is led by a Labour-Green coalition the currency might lose some ground. Any move, however, will be short-lived "given that the US dollar is on the march higher."

The kiwi traded at 60.65 euro cents from 60.84 cents yesterday. The local currency rose to 54.26 British pence from 54.01 pence yesterday and was at 91.51 Australian cents from 91.37 cents yesterday. It traded at 4.7212 Chinese yuan from 4.7591 yuan and dropped to 80.09 yen from 80.64 yen yesterday.

(BusinessDesk)