NZ dollar gains as US interest rate track weighed before Yellen testimony

The New Zealand dollar gained as investors try to gauge the potential pace of US interest rates hikes, ahead of speeches by Federal Reserve chair Janet Yellen.

The kiwi traded at 66.61 US cents at 5pm in Wellington from 66.75 cents yesterday, up from 66.20 cents yesterday. The trade-weighted index rose to 72.29 from 71.99.

The dollar index, a measure of the greenback against a basket of currencies, extended its decline as traders look for more guidance on the path for higher interest rates, having largely priced in a hike by the Fed later this month. Yellen is scheduled to deliver a speech on Wednesday in Washington before testifying before a Congressional committee. At the same time, Australia's central bank yesterday kept its target cash rate at 2 percent, while a rise in global dairy prices stoked speculation New Zealand's Reserve Bank may be able to stave off a cut when it reviews policy next week.

"Until we get fresh guidance from the Fed, the US dollar is struggling to go much higher," said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland. "The kiwi's strong and the Aussie's strong and those currencies have been outpacing the rest of the world."

Westpac's Speizer said Australia looks unlikely to cut interest rates anymore, while New Zealand might not ease further, which would push the kiwi up much higher. Westpac is still picking a New Zealand rate cut next week, though it's finely balanced at a 60 percent chance, he said.

New Zealand's two-year swap rate slipped one basis point to 2.71 percent at 5pm in Wellington, and the 10-year swap declined four basis points to 3.5 percent.

The local currency was little changed at 91.02 Australian cents from 91.07 cents after government data showed Australia's economy grew 0.9 percent in the September quarter.

The kiwi rose to 4.2619 Chinese yuan from 4.2357 yuan yesterday, and advanced to 81.94 yen from 81.32 yen. It edged up to 62.72 euro cents from 62.56 cents yesterday, and gained to 44.20 British pence from 43.88 pence.

(BusinessDesk)