NZ dollar falls as ADP data helps greenback

The New Zealand dollar fell after private payrolls data in the US printed stronger than expected and as traders look ahead to next week's Reserve Bank statement and the extent of easing that may be built in.

The kiwi dollar fell to 71.55USc as at 8am in Wellington, from 72USc late yesterday. The trade-weighted index slipped to 76 from 76.46. 

US companies added 179,000 jobs last month, according to the ADP Research Institute, exceeding the 170,000 forecast and suggesting the official government figures due on Friday will show America's labour market is still growing at a healthy clip, one of the requirements for a Federal Reserve interest rate hike.

By contrast, traders expect New Zealand’s Reserve Bank to cut the official cash rate a quarter point to 2% next week and signal it is still in easing mode, reducing the yield premium on offer in the kiwi.

"While it’s debatable how good an indicator of wider US labour conditions this survey is, some will nudge their payrolls forecasts higher," says Imre Speizer, senior market strategist at Westpac Banking Corp, in a note.

"The uncertainty generated by Brexit plus further RBNZ easing should be negative for the NZD, although partly offset by a weaker US dollar near term," he says, adding that he expects the kiwi to fall to 69USc.

Traders are putting 96% odds on RBNZ governor Graeme Wheeler cutting the official cash rate next week after its latest survey showed expectations for low inflation are becoming entrenched.

A decline in the price of crude oil in recent months, even though it gained overnight, means fuel prices will again be among deflationary forces in the local economy, while the trade-weighted index is still well above the central bank's assumed path, meaning there's little inflation in imported prices.

The kiwi fell to 72.43 yen from 73.58 yen yesterday and slipped to 64.17 euro c from 64.25 euro c yesterday. It fell to 53.71 British pence ahead of the Bank of England's policy review tonight, amid expectations of a rate cut and further stimulus measures, from 54.44 pence. It fell to 4.7445 Chinese yuan from 4.7893 yuan yesterday. 

(BusinessDesk)

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