Dollar edges lower as Fed meeting takes centre stage this week

The New Zealand dollar dipped as investors prepare for the Federal Reserve's policy review this week and will be looking for signs the world's biggest central bank will raise interest rates later this year.

The kiwi slipped to 69.79 US cents at 5pm in Wellington from 69.89 cents at 8am and 69.97 cents on Friday in New York. The trade-weighted index decreased to 74.98 from 75.06 last week.

The Federal Open Market Committee will update policy on Tuesday in Washington, and investors anticipate chair Janet Yellen will be more positive in her view after stronger than expected manufacturing and employment data in recent weeks. That would support the greenback, adding to last week's 1.7 percent decline for the kiwi on the growing expectation New Zealand's Reserve Bank will cut rates next month.

"Obviously, the Fed's not going to hike this week, but they may come out with a slightly more upbeat assessment of where the US is at," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "Kiwi and Aussie rate cuts are fully priced in now and the currency reflects that so momentum has stalled - we need new information and we may get that later on from the FOMC."

If the FOMC isn't as optimistic as investors hope, OMF's Ive said kiwi dollar could retrace some of its recent losses before resuming a longer-term trend lower.

The local currency fell to 93.35 Australian cents from 93.65 cents last week ahead of Australian inflation data on Wednesday, which investors will use to gauge whether the Reserve Bank of Australia will further cut interest rates next week.

The local currency dropped to 4.6598 Chinese yuan from 4.6705 yuan last week and was little changed at 74.17 yen from 74.20 yen. It fell to 63.58 euro cents from 63.73 cents last week and slipped to 53.14 British pence from 53.36 pence.

New Zealand's two-year swap rate increased one basis point to 2.04 percent and 10-year swaps were up one basis point to 2.44 percent.

(BusinessDesk)

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