Dollar heads for 1.1% weekly gain after Reserve Bank signals rates still rising

The New Zealand dollar is heading for a 1.1 percent weekly gain after traders latched on to the Reserve Bank's signal that local interest rates are still set to rise, adding to the bounce earlier in the week as falling commodity prices weighed on the currency.

The kiwi rose to 77.90 US cents at 5pm in Wellington from 77.07 cents on Friday in New York last week. It traded at 77.96 US cents at 8am and 78.11 cents yesterday. The trade-weighted index was little changed at 78.51 from 78.42 yesterday, and is heading for a 0.4 percent weekly gain from 78.19 last week.

In recent weeks, commodity linked currencies such as the kiwi and Australian dollars have been dragged lower by falling oil, iron and agricultural prices, while at the same time the greenback has found favour with more upbeat jobs data stoking expectations of an early rate hike from the Federal Reserve. The kiwi's decline stalled yesterday after the Reserve Bank kept the official cash rate unchanged at 3.5 percent, while saying future rate hikes will be later than previously signalled due to modest inflation. Some traders had discounted the chance of a rate hike and were caught by surprise by the RBNZ's stance.

"The RBNZ moved its curve to where the market is, so it looks like we'll get an interest rate hike in the latter part of 2015 if all things go to plan," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "The RBNZ probably didn't necessarily get their view across all that well - certainly not to the currency market."

OMF's Ive said the Japanese election on the weekend will weigh on the yen, and if sitting Prime Minister Shinzo Abe retains power that will likely add more support for the greenback, which would flow through to a weaker kiwi. The local currency rose to 92.62 yen from 92.23 yen yesterday.

New Zealand's manufacturing sector continued to expand in November, and consumer confidence bounced from a 14-month low in December, according to separate private surveys.

The local currency gained to 94.63 Australian cents from 93.74 cents yesterday. It hit a nine-month high against its trans-Tasman counterpart after Reserve Bank of Australia governor Glenn Stevens said his nation's currency will probably decline next year, and should be trading closer to 75 US cents.

The kiwi edged up to 62.84 euro cents from 62.73 cents yesterday, and fell to 49.53 British pence from 49.71 pence.

(BusinessDesk)