Dollar heads for 1.3% weekly gain as US rate outlook weighs on greenback

The New Zealand dollar is heading for a 1.3 percent gain against the greenback this week after minutes to the Federal Reserve's last policy meeting eroded expectations US interest rates will rise next month.

The kiwi rose to 66.23 US cents at 5pm in Wellington from 65.36 cents on Friday in New York last week. The currency was little changed from 66.29 cents at 8am and 66.12 cents yesterday. The trade-weighted index rose to 71.31 from 71.14 yesterday, and is heading for a 1.5 percent weekly gain.

A BusinessDesk survey of 10 currency advisers predicted the kiwi would trade between 64 US cents and 67.60 cents this week. Five expected the currency to gain, two said it would decline and three thought it would stay largely unchanged.

The Dollar Index, a measure of the greenback against a basket of currencies, fell to a seven-week low today as investors pulled back bets the Fed will hike interest rates next month. Minutes to the Federal Open Market Committee's July meeting released yesterday indicated policy makers were cooler on a September rate hike with most of the members judging economic conditions didn't warrant a move from the near-zero level the fed funds rate has been sitting at since the global financial crisis.

"If the Fed doesn't go, it shows the US economy is a bit weak," said Tim Kelleher, head of institutional sales NZ at ASB Bank Institutional in Auckland.

While the prospect of a delay to higher US interest rates stoked interest in the kiwi dollar, that was offset by weakness in emerging markets weighing on investors' appetite for risk-sensitive assets. Stocks across Asia fell today after the flash Caixin/Markit manufacturing purchasing managers' index indicated Chinese industrial activity shrank at a faster pace than expected. The local currency gained to 4.2390 Chinese yuan from 4.2233 yuan yesterday.

ASB's Kelleher said the kiwi is caught between being supported by investors taking profits on short positions - where they bet the currency will decline - and declining appetite for commodity currencies pushing it down.

"It's still a commodity currency, and if you're seeing emerging currencies getting slapped, then it's going to have some risk-off on to the kiwi as well," he said.

New Zealand government data today showed inbound net migration reached a new record in July, continuing a 12-month trend of new records being set, while annual tourist numbers reached 3 million for the first time.

New Zealand's two-year swap rate was unchanged at 2.84 percent from yesterday, and the 10-year swap fell to 3.52 percent from 3.56 percent.

The kiwi rose to 90.50 Australian cents from 89.92 cents yesterday as Australia's currency was weighed on more heavily by the weaker Chinese data.

The local currency fell to 58.86 euro cents from 59.38 cents yesterday, and was little changed at 42.19 British pence from 42.15 pence. It declined to 81.43 yen from 81.95 yen yesterday.

(BusinessDesk)