NZ dollar slips in lead up to Federal policy review as investors poised for rate hike

The New Zealand dollar fell in the lead-up to the Federal Reserve's policy meeting which is expected to deliver its first interest rate rise in almost a decade.

The kiwi traded at 67.66 US cents at 5pm in Wellington from 67.56 cents at 8am, down from 67.88 cents yesterday. The trade-weighted index fell to 73.55 from 73.77 yesterday.

Traders are preparing for tomorrow's Federal Open Market Committee announcement which is set to end the bank's near-zero policy which has been in place for seven years. Fed chair Janet Yellen has previously signalled a rate of increases will be gradual, and while investors largely anticipate a rise, they'll be scrutinising the track of future hikes.

"People are looking forward to the most eagerly anticipated event that we've really seen in some time," said Michael Johnston, senior dealer at HiFX in Auckland. "A textbook response suggests the US dollar should strengthen, but it's about 80 percent priced in, and given that, we could see US dollar weakness."

HiFX's Johnston expects there will be a flurry of action immediately after the announcement 8am New Zealand time as traders unpick the detail of the move, and assess how quickly the Fed will raise rates in the future.

New Zealand's third-quarter gross domestic product figures tomorrow will also be watched. Government data today showed the nation's current account deficit narrowed to 3.3 percent of GDP in the third quarter on the strong tourism inflow, while the GlobalDairyTrade auction overnight disappointed some investors who were picking a bigger increase in milk product prices than what was achieved.

New Zealand's two-year swap rate rose four basis points to a four-month high 2.85 percent at 5pm in Wellington, and the 10-year swap increased six basis points to 3.72 percent, the highest rate since July 31.

The local currency gained to 93.78 Australian cents from 93.46 cents yesterday, and slipped to 4.3739 Chinese yuan from 4.3885 yuan. It increased to 82.34 yen from 82.13 yen yesterday, and rose to 61.85 euro cents from 61.63 cents. It advanced to 44.94 British pence from 44.76 pence yesterday.

(BusinessDesk)