NZ dollar heads for 1.5 percent weekly gain on prospect of rate hikes

The New Zealand dollar is heading for a 1.4 percent weekly gain after the Reserve Bank yesterday said it will probably start hiking rates next year, though the prospect of the US Federal Reserve unwinding its money printing programme may prompt a weaker kiwi next week.

The kiwi rose to 81.15 US cents at 5pm in Wellington from 79.96 cents at the start of the week, and down from 81.39 cents at 8am and 81.39 cents yesterday. The trade-weighted index was little changed at 76.37 from 76.42 yesterday, and is heading for a 1.6 percent weekly gain, from 75.14 at the Monday open.

A BusinessDesk survey of nine traders and strategists on Monday predicted the local currency would trade between 77.20 US cents and 82 cents this week. Four picked it to gain, two expected a decline and three said it would remain unchanged.

The kiwi got a boost when central bank governor Graeme Wheeler said he will likely lift the official cash rate from its record-low 2.5 percent next year, adding half a percentage point to the forecast track of the 90-day bank bill rate, seen as a proxy for the OCR. That will probably be a short-lived gain as the Fed reviews its own monetary policy next week, and is expected to start tapering its US$85 billion monthly asset purchase programme.

"They may announce a small tapering of US$10/15 billion, though they're still printing out plenty of money to buy bonds," said Michael Johnston, senior trader at HiFX in Auckland. "We should see the kiwi drop and the price action suggests we've seen the short-term top."

Government figures today showed New Zealand food prices fell 0.5 percent in August on cheaper meat and grocery food, slowing the annual gain to 0.3 percent. Separate surveys showed local consumer sentiment and manufacturing activity slowed in August, though remained at elevated levels.

The kiwi was little changed at 87.71 Australian cents from 87.80 cents yesterday, having jumped on weak Australian employment figures, which underlined the diverging interest rate tracks in the neighbouring nations. While New Zealand's central bank is expected to hike rates next year, the Reserve Bank of Australia may cut its key rate further.

The local currency was little changed at 80.87 yen at 5pm in Wellington from 80.89 yen yesterday, and traded at 61.11 euro cents from 61.07 cents. It was almost unchanged at 51.38 British pence from 51.37 pence yesterday.

(BusinessDesk)