Dollar drops below 65USc as case for Fed rate hike builds

The New Zealand dollar dipped below 65USc following a jump in the US dollar as the case for a US interest rate hike firmed following better-than-expected data on the US labour market.

The kiwi touched 64.95USc and was trading at 65.09USc at 8am in Wellington, from 65.18USc at the New York close and 66.09USc on Friday. 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 nonfarm 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 Federal Reserve and comes after chairwoman Janet Yellen said last week that the upcoming December meeting was a "live possibility" for an interest rate hike.

The kiwi was also hit by concern about slowing economic growth in China, the country's largest trading partner, after data released at the weekend showed Chinese exports fell for a fourth straight month in October to be 6.9% percent lower than a year earlier, while imports dropped 18.8%.

"The much stronger-than-expected US labour market report saw the US dollar boosted and expectations for a Fed rate hike increase," ANZ Bank New Zealand senior economist Philip Borkin and senior FX strategist Sam Tuck said in a note. Traders are now pricing in about a 70% chance of a Fed rate hike in December, up from about 55% before the labour market data was released, ANZ said.

"Weaker Chinese trade data over the weekend – with both export and import rates of contraction increasing – will keep (the) NZ dollar under pressure."

ANZ expects the kiwi to trade between 64.60USc and 65.70USc today.

The New Zealand dollar dropped to 4.1350 yuan from 4.1960 yuan on Friday.

The local currency slipped to 60.61 euro cents from 60.69 cents on Friday, to 43.23 British pence from 43.43 pence and to 80.20 yen from 80.39 yen. It edged up to 92.60Ac from 92.46Ac on Friday.

(BusinessDesk)