Dollar slips as Fed's Harker talks up chance for March rate hike

The New Zealand dollar slipped as Federal Reserve Philadelphia president Patrick Harker talked up the chances for an interest rate hike next month, stoking demand for the greenback.

The kiwi fell to 73.17 US cents as at 8am in Wellington from 73.38 cents yesterday. The trade-weighted index declined to 79.64 from 80.

The US dollar index, a measure of the greenback against a basket of currencies, rose 0.3 percent after Harker told reporters he backed three rate hikes this year and said the Federal Open Market Committee's March meeting could see an increase in the federal funds rate. That shared a sentiment voiced by San Francisco Fed president John Williams last week, who also called for three hikes this year.

The greenback's wound back some of the kiwi's gains yesterday when the New Zealand Reserve Bank's survey of expectations showed firms saw a faster pace of inflation creeping into the economy and limited the impact of a surprise 1.3 percent increase in dairy prices from the latest GlobalDairyTrade auction.

"The Fed's Harker signalled that the March meeting remains live for a possible rate increase, echoing the Fed's William's comments on Friday," Bank of New Zealand currency strategist Jason Wong said in a note. "That move was unwound last night, and some, before the combination of a USD turnaround and a pleasing GDT dairy auction saw the NZD recover a little."

RBNZ governor Graeme Wheeler yesterday announced he wouldn't seek a second term, and Finance Minister Steven Joyce named deputy governor Grant Spencer as a six-month interim replacement given the changeover's proximity to the September general election. Joyce will appear before parliament's finance and expenditure select committee to discuss the half-year economic and fiscal update and budget policy statement, while Wheeler is scheduled to deliver a monetary policy statement tomorrow.

The kiwi traded at 95.80 Australian cents from 95.93 cents yesterday. The Reserve Bank of Australia yesterday kept the target cash rate at 1.5 percent and maintained a neutral bias.

The local currency fell to 58.42 British pence from 59.02 pence yesterday after Bank of England monetary policy committee member Kristin Forbes said she was growing uncomfortable with the bank's policy stance as inflation accelerated more than expected. The kiwi slipped to 68.38 euro cents from 68.72 cents yesterday.

The local currency fell to 81.97 yen from 82.33 yen yesterday and declined to 5.0356 Chinese yuan from 5.0586 yuan.

(BusinessDesk)