NZ dollar holds gains after Yellen sticks to rate hike plan

The New Zealand dollar held on to its gains after Federal Reserve chairwoman Janet Yellen signalled the US central bank still intends to continue tightening monetary policy, although conditions had become less supportive.

The kiwi was trading at 66.57USc at 8am in Wellington, from 66.59USc at 2am, ahead of Ms Yellen's testimony to the House financial services committee in Washington, and up from 66.17USc at 5pm yesterday.

There were no obvious catalysts for the kiwi to step higher yesterday evening, although it appeared driven by a global currency movements rather than the local currency, analysts say.

In her semi-annual testimony, Ms Yellen signalled confidence in the US economy, and confirmed her expectation for "gradual increases" in the central bank's key target interest rate.

Still, she noted downside risks including tighter US financial conditions, persistently low inflation, a higher US dollar, global markets turmoil and risks for Chinese growth and the Chinese currency, implying that if they continued, the Fed may keep rates on hold.

"It's not like she's saying the previous normalisation path is now off the table and they are going to stay flat, she is not saying that, she is saying the path is still the intent but there are now risks to that," Westpac Banking Corp senior market strategist Imre Speizer says.

"What you would take out of it is that March is a no-go but at some point that they still want to hike rates."

The New Zealand dollar hardly reacted, he says, noting it is currently consolidating between 66USc and 67USc.

"There are question marks about the US dollar that is pushing kiwi/US up. There are also question marks about global risk, that's pushing kiwi down, so it's roughly locked in place at the moment until any one of those things changes," Mr Speizer says.

In New Zealand today, the BNZ-BusinessNZ performance of manufacturing index for January is released at 10:30am. Real Estate Institute monthly housing data may also be published.

The New Zealand dollar rose to 93.81Ac from 93.67Ac yesterday, gained to 59.12 euro c from 58.59 c, increased to 45.90 British pence from 45.72 pence, and lifted to 4.3743 yuan from 4.3480 yuan. It was little changed at 75.88 yen from 75.84 yen yesterday.

The trade-weighted index gained to 72.30 from 72.01 yesterday.

Markets across Asia may be quieter than usual today with China still out for the week-long Lunar New Year holiday, and Japan closed for its National Foundation Day holiday.

(BusinessDesk)