Dollar slides to eight-week low as US dollar jumps on better second-quarter growth

The New Zealand dollar slumped to an eight-week low as the US dollar jumped on better than expected US second quarter growth data, bolstering sentiment about the outlook for rising US interest rates.

The kiwi touched 84.61 US cents and was trading at 84.83 cents at 8am in Wellington, from 85.10 cents at 5pm yesterday. The trade-weighted index was little changed at 79.50 from 79.53 yesterday. after touching a seven-week low of 79.37 overnight.

The US dollar index, which measures the greenback against a basket of currencies, reached its highest level in more than 10 months after a report showed the world's largest economy expanded at a 4 percent annual rate in the second quarter, beating the 3 percent expectation of economists in a Reuters poll and after shrinking 2.1 percent in the first quarter.

Separately, the Federal Reserve Open Market Committee continued to pull back its monthly bond buying programme, keeping it on track to end the stimulus measure in October. The FOMC appeared less concerned about weak inflation and removed a phrase noting the jobless rate was elevated, signalling there may be a change in monetary policy "sooner rather than later", said Tim Kelleher, ASB Bank head of institutional foreign exchange sales in New Zealand. Higher interest rates in the US will increase demand for the greenback and help the Reserve Bank which wants to see a lower kiwi.

The New Zealand dollar has declined 3.3 percent so far this month on weaker-than-expected inflation and commodity prices and following Reserve Bank hints it may intervene to pull down the kiwi after signalling a pause in its hiking cycle. Data released by the Reserve Bank yesterday showed it sold just $2 million in the month of June.

"The Reserve Bank will be quite happy that the US dollar is stronger across the board," Kelleher said. "The kiwi is probably relatively fair value at the moment but we can move with further US dollar strength, back towards the bottom end of the ranges again."

The kiwi is unlikely to break through its 200-day moving average of 84.50 US cents today, and will likely trade between 84.50 cents and 85 cents, Kelleher said.

Traders will be looking ahead to tomorrow's non-farm payrolls data in the US tomorrow for further direction.

The New Zealand dollar advanced to 90.93 Australian cents from 90.66 cents yesterday ahead of a report today expected to show a decline in Australian monthly building approvals.

The kiwi slipped to 63.33 euro cents from 63.45 cents yesterday, weakened to 50.16 British pence from 50.22 pence, and advanced to 87.24 yen from 86.87 yen.

(BusinessDesk)