Dollar heads for 0.8 % weekly fall as local rates story, Fed policy weigh

The New Zealand dollar is heading for a 0.8 percent fall this week as traders weigh up the prospect of rising interest rates locally against the prospect of a stronger greenback as the Federal Reserve pulls back on printing money.

The kiwi fell to 82.99 US cents at 5pm in Wellington from 83.64 cents at the close of trading last week. It was up from 82.78 cents at 8am and 82.57 cents yesterday. The trade-weighted index fell to 77.99 from 78.73 yesterday, and is heading for a 0.4 percent weekly decline from 78.29 last week.

A BusinessDesk survey of 11 traders and strategists on Monday predicted the local currency would trade between 82 US cents and 84.80 cents this week. Four expected the kiwi to rise, four picked it to remain relatively neutral and three anticipated a decline.

Minutes to the Fed's last policy meeting released this week indicated the US central bank has no plans to slow down its withdrawal of quantitative easing. While upbeat American manufacturing figures fuelled some investors' appetite for risk after weak Chinese and European industrial production numbers, the Federal Reserve's removal of monetary stimulus is expected to underpin the greenback.

Against that, traders are weighing up the prospect New Zealand's Reserve Bank will lift the official cash rate next month as it looks to head off the threat of future inflation that may appear in an accelerating economy.

"In my view, the kiwi will decline over 2014 as the US comes back stronger," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand. "I'm really looking for the RBNZ to start getting traction, when the market decides it's serious enough and it's time to exit its position, which will happen before the economy slows down, or when the US comes into spring, the snow disappears, they get a bumper ag season and the economy goes boom."

Traders will be looking to see if anything is announced when finance ministers and central bank governors from the Group of 20 largest economies meet in Sydney this week.

The local currency edged up to 92.35 Australian cents from 92.26 cents yesterday, and gained to 85.05 yen from 84.14 yen. It rose to 60.51 euro cents from 60.03 cents yesterday, and increased to 49.84 British pence from 49.51 pence.

(BusinessDesk)