NZ dollar gains as weaker US economic data reinforce Fed's gradual hikes

The New Zealand dollar advanced as weaker-than-expected US economic data reinforced views that future Federal Reserve interest rate hikes will be gradual.

The kiwi was at 67.24USc at 8am in Wellington, unchanged from the New York close, and ahead of 66.91USc at 5pm on Friday. The trade-weighted index gained to 73.42 from 73.21 on Friday.

The US dollar index, which measures the greenback against a basket of currencies, slid after a report showed US services PMI, a survey of purchasing managers in the service industry, fell to 53.7 in December from 56.1 in November, missing expectations for a reading of 55.9.

Together with the manufacturing equivalent, the composite PMI fell to 53.5, from 55.9, which is the softest in 12 months. Additionally, the Kansas City Fed Manufacturing Index fell to -9 from -1 in December, missing expectations for +1.

In a much anticipated move last week, the Fed raised interest rates for the first time in almost a decade, while emphasising that future hikes would be gradual. Richmond Fed president Jeffrey Lacker said on Friday that the anticipated four interest rate hikes for 2016 is half the pace of Fed hikes in the last tightening cycle.

"US economic data was on the weak side of expectations," ANZ Bank New Zealand senior economist Philip Borkin and senior foreign exchange strategist Sam Tuck said in a note. "The run of data weakness continues to reinforce the gradual message."

The New Zealand dollar is likely to be supported today by strong November migration data released at 10:45am, said ANZ, which expects the kiwi to trade between 66.70 and 67.50USc.

Also scheduled for publication today is the Westpac McDermott Miller fourth quarter consumer confidence survey at 10am, and November credit card spending data at 3pm.

The New Zealand dollar fell to 93.60Ac from 93.91Ac on Friday, advanced to 45.08UKp from 44.88UKp, edged up to 61.85 euro cents from 61.72 cents, and gained to 4.3572 yuan from 4.3378 yuan.

It slipped to 81.49 yen from 82.29 yen on Friday after the Bank of Japan on Friday extended the duration of bonds it would buy to 12 years from 10 years.

(BusinessDesk)