Dollar slips in tussle between NZ economy, Fed rates outlook

The dollar fell in subdued trading as traders looked ahead to the GlobalDairyTrade auction this week and the release of minutes of the latest Federal Reserve meeting.

The kiwi traded at 71.75USc as at 5 pm in Wellington versus 71.84USc this morning and little changed from late New York trading on Friday. The trade-weighted index was at 78.15 from 78.35 in New York Friday.

"It's a fairly directionless market so far," Sheldon Slabbert, a sales trader at CMC Markets says, noting it's a holiday weekend in the US and so trading is light.

He says the next catalyst will be the GlobalDairyTrade auction overnight Tuesday and then "with the lack of data this week from the US, the focus will be on Europe to drive sentiment."

He noted that the "arm wrestle" continues for the kiwi, which is caught between New Zealand's fairly resilient economic outlook and a growing view that the US Federal Reserve will lift rates in March.

Mr Slabbert sees fair-value slightly higher than its current level "so we could see the kiwi squeeze a little bit higher but all in all it’s a US dollar story at this stage."

Earlier, fourth quarter producer price index data pointed to inflationary pressures, which may add to the view New Zealand's central bank won't be able to keep rates on hold for as long as it is forecasting.

Prices paid by producers – input prices – rose 1% in the three months ended December, while output prices, or prices received by producers, rose 1.5%, Statistics New Zealand figures show.

The central bank kept rates on hold at 1.75% earlier this month and didn't signal any rate increases until mid-2019. Economists are expecting the central bank to lift rates at some point in 2018.

The local dollar traded at 57.78 British pence versus 57.82 pence in New York. The kiwi traded at 67.61€ c from 67.67€c in New York. It was at 81.16 yen versus 81.06 yen and at 4.9264 yuan from 4.9304 yuan in New York on Friday. It was at 93.48Ac from 93.56Ac last week.

New Zealand's two-year swaps rose four basis points to 2.36 while 10-year swap rates rose 1 basis point to 3.52%.

(BusinessDesk