NZ dollar adds 0.9% over week after dovish hike from Fed

Westpac chief currency strategist Robert Rennie

The New Zealand dollar ended 0.9 percent higher on the week after markets were disappointed when the US Federal Reserve didn't announce plans to accelerate the pace of rate increases later in the year.

The kiwi dollar was trading at 69.90 US cents as at 5pm in Wellington versus 69.91 cents late yesterday and 69.31 early Monday. On a trade weighed-index basis it was at 75.97 versus 75.98 Monday and 76.07 late yesterday.

There was plenty of event risk over the week, including rate decisions from the Bank of Japan, the Bank of England, and key economic data in New Zealand and Australia "but I think the over-arching theme from this week was the 'dovish hike' from the Fed," said Robert Rennie, chief currency strategist at Westpac Banking Corp in Sydney.

There was "a quite dramatic drop in measures of volatility around the world and that environment is probably fairly supportive for the so-called commodity currencies, the Australian dollar and the New Zealand dollar," he said.

Looking ahead, he doesn't expect much action in the kiwi ahead of next week's Reserve Bank of New Zealand interest rate review and statement and said the upside is likely capped at 70 US cents and he would be surprised to see it move much below 69.60 cents.

Economists are widely expecting the central bank to keep rates on hold at 1.75 percent at next week's review and maintain a neutral bias. "We expect next week's statement to retain the message that 'monetary policy will remain accommodative for a considerable period,'" said Westpac Bank acting chief economist Michael Gordon.

The kiwi was at 56.59 British pence from 56.99 pence and at 64.88 euro cents from 65.19 cents. It was at 90.93 Australian cents from 91.03 cents and 4.8236 yuan from 4.8206 yuan and 79.30 yen from 79.28 yen.

The two-year swap rate rose 2 basis points to 2.30 percent while the 10-year swaps rose 2 basis points to 3.52 percent.


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