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Dollar heads for 1.5% weekly gain as Fed keeps market guessing

Paul McBeth
Fri, 17 Oct 2014

The New Zealand dollar is heading for a 1.5 percent weekly gain against the greenback as investors pare back their bets on an early rate hike by the Federal Reserve after some weak US data earlier this week and conflicting messages from central bank officials yesterday.

The kiwi rose to 79.30 US cents at 5pm in Wellington from 78.14 cents on Friday in New York last week. It traded at 79.41 cents at 8am and 79.73 cents yesterday. The trade-weighted index fell to 76.85 from 77.20 yesterday, and is heading for a 0.5 percent weekly gain from 76.48 last week.

A BusinessDesk survey of 10 traders and strategists on Monday predicted the kiwi would probably trade between 76 US cents and 80 cents this week. Five picked the kiwi to fall this week, while three expected it to gain and two said it would remain largely unchanged.

Traders were confused by conflicting messages from Philadelphia Fed President Charles Plosser and St Louis Federal Reserve president James Bullard about when the Fed might start lifting interest rates from the near-zero policy it's been running since the global financial crisis, adding to the negative view on the greenback in recent days. Weaker than expected retail sales and producer prices data in the US yesterday prompted traders to push out their expectations for rates to start rising, sapping demand for the greenback which has been rallying in recent months.

"It's going to be choppy for a while but the risk is we still see the kiwi dollar lower over the next couple of weeks," said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. "The kiwi is three cents off the low, and looks like a sell on rallies."

Investors will be looking forward to a speech by Fed chair Janet Yellen on Friday in Washington, along with US house building and consumer confidence reports.

The kiwi dollar had a brief spike down during the local trading session after an incorrect media report that the Reserve Bank reiterated its view the local currency's strength was unsustainable. The central bank actually announced it will increase the basket of currencies making up the benchmark TWI to 17 from the current five.

The local currency fell to 84.17 yen at 5pm in Wellington from 84.58 yen yesterday, and was little changed at 90.62 Australian cents from 90.71 cents. It slipped to 61.95 euro cents from 62.19 cents yesterday, and dropped to 49.30 British pence from 49.88 pence.


Paul McBeth
Fri, 17 Oct 2014
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Dollar heads for 1.5% weekly gain as Fed keeps market guessing