Dollar falls on growing optimism over US economy; FOMC minutes loom

The New Zealand dollar fell as investor optimism about the strength of the US economy, ahead of minutes to the last Federal Open Market Committee meeting, underpins the greenback.

The kiwi traded at 73.58 US cents at 5pm in Wellington from 73.35 cents at the start of the day and from 74.20 cents yesterday. The trade-weighted index declined to 76.19 from 76.39 yesterday.

Better-than-expected housing data in the US has stoked speculation recent weakness in the world's biggest economy may have been short-lived, giving the Federal Reserve more reason to start raising interest rates from its seven-year-long zero-rate policy. Minutes to the last FOMC meeting will be released on Wednesday in Washington, and investors will be looking to see how policymakers assessed the pace of economic growth in the US.

"The US dollar might just keep running a bit higher because it had been punished severely for its bad first quarter and April wasn't too flash either, but some of the numbers are starting to look at bit better," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "The kiwi's flat at the moment and just waiting to break down more."

Investors largely ignored the drop in milk product prices at the GlobalDairyTrade auction, with prices down an average 2.2 percent across all products. The price for whole milk powder, New Zealand's key export product, slipped just 0.5 percent.

New Zealand's government will tomorrow unveil its 2015 budget, though Speizer said it won't be of much interest to the market with the fiscal track still likely to show a return to surplus and the Crown not at risk of a downgrade by credit rating companies.

The kiwi was little changed at 92.88 Australian cents at 5pm in Wellington from 92.83 cents yesterday and fell to 4.5649 Chinese yuan from 4.6009 yuan. It gained to 66.10 euro cents from 65.63 cents yesterday, and edged up to 47.46 British pence from 47.31 pence. It was unchanged at 89 yen from the same time yesterday.

New Zealand's two-year swap rate increased to 3.37 percent at 5pm in Wellington from 3.34 percent, while the 10-year swap rate advanced to 4 percent from 3.92 percent.

(BusinessDesk)