NZ dollar retreats after topping 74 US cents

(BusinessDesk)

The New Zealand dollar fell, having climbed above 74 US cents overnight, with some traders saying it may have seen its highs for the year because US rate hikes will increasingly come into focus.

The kiwi fell to 73.66 US cents as at 5pm in Wellington from as high as 74.19 cents overnight, and down from 73.77 cents yesterday. The trade-weighted index declined to 74.96 from 75.09 yesterday.

The kiwi gave up earlier gains after Federal Reserve chair Janet Yellen emphasised the Fed's intention to raise interest rates this year. Jerome Powell will take over from Yellen as the chair from Feb. 3 and be sworn in two days later. The greenback has been out of favour despite the prospect of higher US interest rates, but traders expect the dollar will attract buyers when rate differentials start favouring the US.

"We're picking that's the high for the year" for the kiwi, said Grant Bodle, senior FX dealer at HiFX. "The Fed is likely to hike four times this year. Fed hikes mean US dollar strength."

Bodle says in 2018 the kiwi may trade in a similar range to 2017 against the greenback "but slightly skewed to the downside." HiFX sees a range of 64-to-65 US cents at the low end up to around 74 cents at the top, compared to 2017's 66-to-74 cent range

The Federal Open Market Committee was unanimous in keeping the federal funds rate in a range of 1.25 percent to 1.5 percent, with Yellen saying the central bank "expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate".

The local currency rose to 91.48 Australian cents from 91.36 cents yesterday. Both countries have now posted weaker-than-expected inflation data.

The kiwi fell to 4.6320 Chinese yuan from 4.6614 yuan yesterday and traded at 80.53 yen from 80.33 yen. It fell to 59.28 euro cents, reversing earlier gains, from 59.37 cents yesterday and fell to 51.86 British pence from 52.03 pence.

New Zealand's two-year swap rate rose 1 basis point to 2.16 percent, while 10-year swaps rose 1 basis point to 3.24 percent.