Dollar drops after Fed keeps December rate hike alive

The New Zealand dollar dropped after the US Federal Reserve signalled it could hike interest rates at its December meeting and traders await the Reserve Bank of New Zealand's rate decision this morning.

The kiwi fell as low as 66.39USc after the Fed's 7am statement, and was trading at 66.42c at 8am in Wellington, from 67.25c late yesterday. The trade-weighted index declined to 72.10 from 72.73 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, rose to its highest level in more than two months after the Federal Open Market Committee left interest rates unchanged as expected following a two-day meeting.

But it dropped reference to concern about recent global economic factors pushing down inflation, and was more upbeat in its assessment of household spending and business investment. That prompted traders to increase their bets for a December hike to 45%, from 30% before today's announcement.

"The ink is still drying on the FOMC's announcement this morning, but the initial interpretation is that the possibility of 2015 lift-off is still entirely possible," ANZ Bank New Zealand senior economist Philip Borkin and senior FX strategist Sam Tuck say.

"The US dollar strengthened after the FOMC left the December meeting as live."

The local focus now turns to the RBNZ interest rate decision scheduled for release at 9am in Wellington.

ANZ says it expects the benchmark interest rate to remain at 2.75 %, with a continued easing bias. The kiwi will probably trade between 65.40USc and 68.20c today, according to ANZ.

The New Zealand dollar slipped to 93.80Ac from 94.44c yesterday, weakened to 43.54 British pence from 43.93 pence, fell to 80.55 yen from 80.92 yen, declined to 4.2248 yuan from 4.2755 yuan, and was little changed at 60.90 euro cents from 60.96c.

(BusinessDesk)

Tina Morrison
Thu, 29 Oct 2015

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Dollar drops after Fed keeps December rate hike alive