Dollar heads for 1% weekly drop as rate cuts weighed, US jobs data looms

The New Zealand dollar is heading for a 1 percent decline against the greenback after an interest rate cut across the Tasman and weaker local employment data put the Reserve Bank's easing bias under greater scrutiny, and as US jobs data looms.

The kiwi fell to 74.56 US cents at 5pm in Wellington from 75.34 cents on Friday in New York last week. It traded at 74.23 cents at 8am and 74.99 cents yesterday. The trade-weighted index declined to 77.08 from 77.28 yesterday, and is heading for a 1.6 percent weekly drop.

A BusinessDesk survey of 10 advisers predicted the kiwi would trade between 73.80 US cents and 77 cents this week. Nine expected the kiwi to fall and one said it would remain largely unchanged.

Traders have raised their expectations for a rate cut in New Zealand after data this week showed slowing wage growth, and are pricing in 36 basis points of cuts to the 3.5 percent official cash rate over the coming 12 months. At the same time, they've lowered their expectation for Australia's central bank to cut rates further after governor Glenn Stevens dropped reference to a bias on Tuesday, though today's monetary policy statement kept the door open for looser policy.

"People are starting to reassess the outlook for the two central banks, with the RBA done at least for now, and the RBNZ perhaps getting closer to having to ease," said Philip Borkin, senior economist at ANZ Bank New Zealand in Auckland. "We've seen a big reassessment of views on the RBA and RBNZ, and that explains that move on that (kiwi/Aussie) cross."

The local currency traded at 94.19 Australian cents at 5pm in Wellington from 93.96 cents yesterday, and is heading for a 1.8 percent decline this week.

Borkin said traders are watching for US non-farm payrolls on Friday in Washington to gauge the strength of the world's biggest economy. If the US added 230,000 jobs last month that should support expectations that the Federal Reserve will start increasing interest rates this year which would stoke demand for the greenback.

"We still believe the Fed is going to tighten rates this year and that should be US dollar supportive," Borkin said.

The local currency fell to 48.05 British pence from 49.20 pence yesterday with the reigning Conservative Party looking likely to win the UK general election as the votes are counted.

The kiwi rose to 66.47 euro cents from 66.09 cents yesterday, and declined to 89.36 yen from 89.58 yen. The local currency decreased to 4.6289 Chinese yuan from 4.6537 yuan yesterday.

The two-year swap rate fell to 3.395 at 5pm in Wellington from 3.42 yesterday, and the 10-year swap rate declined to 3.9225 from 3.9775.

(BusinessDesk)