NZ dollar falls after Fed's Yellen stokes rate hike speculation, ECB decision looms

The New Zealand dollar fell after Federal Reserve chair Janet Yellen kept alive expectations for a rate hike this month, saying she was confident about the outlook for the world's biggest economy.

The kiwi traded at 66.47 US cents, down from 66.63 cents yesterday. The trade-weighted index was little changed at 72.28 from 72.29 yesterday.

The greenback rallied after Yellen warned delays to the planned move away from a zero interest rate monetary policy would lead to sharper hikes in the future, and said economic data had been in line with the Fed's expectations. The Fed is expected to hike after its Dec. 15-16 review, a week after New Zealand's Reserve Bank announces the outcome of its own policy meeting, with traders split on whether governor Graeme Wheeler will cut.

"The market has already priced in a US hike, if the US goes by 25 basis points the market's not going to be un-reactive, but the major moves have already been done," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "The danger the RBNZ faces next week is lack of action - if they come out and do nothing, and just reiterate what they've said before about the elevated currency and the overseas dangers combined with the falling milk prices, well you've just missed a golden opportunity to act.

"The kiwi would shoot higher almost immediately and that's something the country and the RBNZ doesn't want."

New Zealand's two-year swap rate increased one basis point to 2.72 percent at 5pm in Wellington, and the 10-year swap advanced two basis points to 3.52 percent.

Government data today showed residential building activity grew 2.9 percent in the September quarter, while realtor Barfoot & Thompson said house prices rose at a slower pace in November.

The kiwi was little changed at 62.76 euro cents from from 62.75 cents yesterday ahead of the European Central Bank review, which is expected to expand its quantitative easing programme to shore up the regional economy. The local currency gained to 44.53 British pence from 44.22 pence yesterday.

The kiwi traded at 91.01 Australian cents from 91.05 cents yesterday after Bureau of Statistics figures showed a wider trade deficit in October than expected. The local currency fell to 4.2533 Chinese yuan from 4.2625 yuan yesterday, and was little changed at 81.99 yen from 81.95 yen.

(BusinessDesk)