Kiwi gains as questions over Trump's fiscal policy weigh on US rate outlook

The New Zealand dollar gained on speculation there will be less need to raise interest rates in the US because the Trump administration is too distracted by imbroglios such as the firing of the Federal Bureau of Investigation chief to enact economy-boosting policies and inflation data has been weak.

The kiwi advanced to 69.38 US cents as at 8am in Wellington from 68.96 cents late yesterday. The trade-weighted index increased to 75.21 from 74.86 yesterday.

Stocks on Wall Street dropped with the Standard & Poor's 500 index down 1.7 percent in late trading, the US dollar index, a broad measure of the greenback, fell 0.6 percent, and the yield on 10-year US Treasuries fell 10 basis points as investors scaled back their expectations for the Federal Reserve to raise interest rates this year. The downbeat tone came amid reports alleging Trump may have tried to influence the FBI investigation into his national security adviser Michael Flynn, days after he shared secret Israeli intelligence with Russian officials. The Chicago Board Options Exchange's volatility index, known as Wall Street's 'fear gauge', jumped 45 percent to 15.43.

"The combination of a potentially weaker inflation environment than previously thought and less chance that Trump's fiscal stimulus will see the light of day has softened the outlook for Fed tightening," Bank of New Zealand currency strategist Jason Wong said in a note. "On most USD indices, the big rally in the USD following Trump's surprise election in November has now been fully unwound."

The local currency rose to 93.37 Australian cents from 92.90 cents after Standard & Poor's affirmed its AAA credit rating for Australia yesterday, while keeping a 'negative' outlook on the federal government's ability to balance the books by 2020/21.

The kiwi increased to 62.20 euro cents from 62.09 cents. It was trading near an 11-month low as the Trump administration's woes sapped demand for the greenback and as the election of Emmanuel Macron to the French presidency calmed investors nervous about the region's economy.

The local currency increased to 53.52 British pence from 53.32 pence yesterday and dropped to 77.03 yen from 77.60 yen. It rose to 4.7742 Chinese yuan from 4.7493 yuan yesterday.

(BusinessDesk)