Dollar falls near 67USc as investors weigh likely impact of Fed rate hike

The New Zealand dollar fell near 67 US cents as investors grow increasingly nervous ahead of the US Federal Reserve's policy review later this week, which is expected to kick off the first tightening cycle in the world's biggest economy in more than a decade.

The kiwi declined to 67.01 US cents at 5pm in Wellington from 67.25 cents at 8am, and 67.19 cents on Friday in New York. The trade-weighted index slipped to 73.01 from 73.32 last week.

Investors are still unsure about how quickly the Federal Open Market Committee will start raising interest rates, and whether recent gains in the greenback will be validated by the central bank's announcement on Wednesday in Washington.

That fear has fed into other risk-sensitive asset classes, with Third Avenue Management freezing redemption on a US$788 million junk bond fund over fears a lack of liquidity might combine with an exodus of investors when US rates start rising, and stocks across Asia declining today. The Chicago Board Option Exchange's Volatility Index, known as Wall Street's 'fear gauge', spiked to a two-and-a-half-month high on Friday.

"Risk aversion from Friday has continued into today and we're not going to get too much (happening) ahead of the FOMC," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "Investors who are long the US, and short the kiwi/US probably should be quite nervous," he said, referring to when a traders expect an asset to appreciate in a long holding, and vice versa in a short position.

A BusinessDesk survey of 11 analysts predicts the kiwi will trade between 64.50 US cents and 69.50 cents this week. Eight expect the kiwi to gain while three bet it will decline.

A BusinessNZ-BNZ survey today showed activity in New Zealand's services sector, which accounts for two-thirds of the economy, expanded at its fastest pace in eight years, raising the chance for a faster quarterly pace of economic expansion when government figures are released for the third quarter on Thursday.

New Zealand's two-year swap rates fell two basis points to 2.75 percent at 5pm in Wellington, and 10-year swaps declined two basis points to 3.59 percent.

Finance Minister Bill English and the Treasury will release the government's latest growth and budget forecasts tomorrow.

The local currency dropped to 4.3265 Chinese yuan from 4.3363 yuan on Friday in New York. China Foreign Exchange Trade System last week published an index composed of 13 currencies, including the kiwi, showing the yuan's effective exchange rate had appreciated 2.9 percent on a as at Nov. 30 from the end of 2014.

The kiwi fell to 93.04 Australian cents from 93.44 cents last week, and was little changed at 81.17 yen from 81.21 yen. It traded at 61.14 euro cents from 61.13 cents last week, and was little changed at 44.10 British pence from 44.15 pence.

(BusinessDesk)