Dollar claws back some ground after post-payrolls slump

The New Zealand dollar clawed back some ground, having slumped in the wake of stronger-than-expected US jobs figures that made a December interest rate hike in the US more of a certainty.

The kiwi traded at 65.59 US cents at 5pm in Wellington, having earlier fallen as low as 64.95 cents from 66.09 cents at the end of last week in Asia. The trade-weighted index was at 71.23 from 71.62 on Friday.

The US dollar index, which measures the greenback against a basket of currencies, jumped to its highest level in seven months after a report on Friday showed US non-farm payrolls increased by 271,000 in October, the biggest gain this year and ahead of the 180,000 expected for the month. The labour market data is closely watched by the US Federal Reserve and comes after chair Janet Yellen said last week that the upcoming December meeting was a "live possibility" for an interest rate hike. That's going to come at about the same time the Reserve Bank of New Zealand could cut its benchmark rate, giving investors less reason to hold the kiwi dollar.

"It's going to be tough for the kiwi to regain its levels," said Alex Hill, head of corporate forex at NZ Forex. "The market has seen what it wanted to see - everyone was long US dollars ahead of the non-farm payrolls and it followed through and delivered. The US is going to be tightening monetary policy over the next 12 months. The kiwi is going to see lower levels. It's a given."

Hill said traders have increased their bets on a Fed rate hike in December to 68 percent from 50 percent last week. "We think more important will be the second rate hike and what happens beyond that."

There is support for the kiwi dollar at between 65 US cents and 65.20 cents and below that it would find support again at least 1 US cents lower at between 63.80 cents and 64 cents, he said.

The New Zealand dollar dropped to 4.1699 yuan from 4.1960 yuan on Friday. It rose to 60.91 euro cents from 60.69 cents on Friday, gained to 43.51 British pence from 43.43 pence and rose to 80.88 yen from 80.39 yen. It rose to 92.99 Australian cents from 92.46 cents on Friday. The two-year swap rate rose 4 basis points to 2.80 percent and the 10-year swaps jumped 8 basis points to 3.61 percent.

(BusinessDesk)