Dollar heads for 0.7% weekly fall on prospect of slower rate hikes

The New Zealand dollar is heading for a 0.7 percent weekly decline as improving prospects for global growth buoyed the greenback, and left traders to mull the prospect of a slower cycle of local interest rate hikes.

The kiwi fell to 85.62 US cents at 5pm in Wellington from 86.21 cents last Friday in New York. It traded at 85.61 cents at 8am, down from 85.82 cents yesterday. The trade-weighted index was at 79.91 from 79.98 yesterday, and is heading for a 0.4 percent weekly decline.

A BusinessDesk survey of 11 traders and strategists on Monday predicted the local currency would trade between 85 US cents and 87.40 cents this week. Six predicted the kiwi would remain neutral this week, while two picked it to increase and three said it would decline.

Better than expected manufacturing indicators in the US and China helped buoy the greenback yesterday after minutes to the latest Federal Reserve policy meeting this week showed there was scope still scope for the US to run near-zero interest rates. Tepid inflation In New Zealand has caused investors to question whether the central bank will hike interest rates as aggressively as thought, and are looking to the next monetary policy statement in June for guidance. Traders are betting the Reserve Bank will lift the official cash rate 84 basis points over the coming 12 months, down from 90 points in early May before governor Graeme Wheeler threatened he may intervene in currency markets if the kiwi doesn't follow falling commodity prices.

"We've still got fears that the Reserve Bank will cut the OCR track in two weeks," said Imre Speizer, market strategist at Westpac Banking Corp in Auckland. "That's putting downward pressure on the kiwi and could take a new lease of life next week."

An ANZ-Roy Morgan survey today showed New Zealand consumer confidence continued to come off pre-recession highs, while remaining at elevated levels, with rising interest rates starting to bite into people's optimism.

Traders will be watching the German IFO business survey and data on US new home sales in the Northern Hemisphere session.

The local currency fell to 87.12 yen at 5pm in Wellington from 87.26 yen yesterday, and gained to 92.65 Australian cents from 92.51 cents. It was little changed at 62.72 euro cents from 62.75 cents, and traded at 50.74 British pence from 50.80 pence.

(BusinessDesk)