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NZ dollar heads for 0.7 percent dip this week after Fed dials down money printing a little

Paul McBeth
Wed, 11 Jul 2018

The New Zealand dollar is heading for a 0.7 percent dip against the greenback this week after the Federal Reserve finally delivered on plans to slow the pace of its four-year-old asset purchase programme.

The kiwi fell to 82.05 US cents at 5pm in Wellington from 82.63 cents at the start of the week, though up from 81.73 cents at 8am and 81.81 cents yesterday. The trade-weighted index was largely flat on the week, trading at 77.71 at 5pm, and up from 77.51 yesterday.

A BusinessDesk survey on Monday of 10 traders and strategists picked the local currency to trade between 80.50 US cents and 84.50 cents this week. One expected the currency to remain unchanged while six say it might gain and three predicted a drop.

The Fed yesterday took its first step away from a massive stimulus programme in response to the sub-prime collapse and global financial crisis more than five years ago, which has been debasing the greenback ever since. Investors are mulling the impact of the decision, as they prepare for the typically quiet Christmas period ahead of the end of year repositioning of their portfolios.

"We didn't see much of a follow-through after the price action yesterday," said Alex Hill, head of dealing at HiFX in Auckland. "The focus comes on the round of tapering."

HiFX's Hill said New Zealand's currency may push up for the remainder of the year after finding support at 81.80 US cents, as investors clear out their short positions, where they bet an asset will depreciate.

The Fed's announcement came ahead of local figures yesterday showing New Zealand's economic growth accelerated to a quarterly 1.4 percent in the September period on the strength of the dairy sector, stoking expectations the Reserve Bank will have to lift interest rates earlier than previously anticipated.

Traders are betting governor Graeme Wheeler will lift the key rate 126 basis points over the coming 12 months from its 2.5 percent level, according to the Overnight Index Swap curve.

The kiwi gained to 85.63 yen at 5pm in Wellington from 84.98 yen yesterday after the Bank of Japan retained its pledge to expand its monetary base by an annual 60 trillion to 70 trillion yen to try and lift inflation to 2 percent.

The local currency slipped to 92.43 Australian cents from 92.57 cents yesterday, and gained to 60.13 euro cents from 59.88 cents. It advanced to 50.13 British pence from 49.95 pence yesterday.


Paul McBeth
Wed, 11 Jul 2018
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NZ dollar heads for 0.7 percent dip this week after Fed dials down money printing a little