Dollar falls to four and a half-year low after US jobs data boosts Fed rate hike prospect

The New Zealand dollar fell to its lowest level in more than four and a half years after better-than-expected US employment data cemented expectations that the US Federal Reserve will raise interest rates in September.

The kiwi touched 70.25USc over the weekend, its lowest level since August 2010. The local currency was trading at 70.32USc at 8am in Wellington, from 70.44USc at the New York close and 71.39USc at 5pm in Wellington on Friday. The trade-weighted index dropped to 74.01USc from 74.69USc on Friday.

The US dollar index, which measures the greenback against a basket of currencies, rose after the US non-farm payrolls report showed employers added 280,000 jobs last month, above the 225,000 expected and the biggest gain in five months. That bolstered the case for the Fed to hike interest rates from near zero by September.

"The US dollar soared to fresh highs against many of the major currencies on the back of a solid labor market report," Kathy Lien, managing director of FX strategy at BK Asset Management in New York, said in a note. "Traders view the May labour market report as a green light for liftoff by the US central bank."

MsLien said Fed chairwoman Janet Yellen would probably use her press conference following the central bank meeting this month to prepare markets for a rate hike in the third quarter.

"This means that the US dollar has more room to rise, especially after the June meeting."

In New Zealand today, the focus will be on Chinese trade data for May. China is New Zealand's biggest trading partner.

Later in the week, attention will turn to the Reserve Bank monetary policy statement on Thursday.

The New Zealand dollar slipped to 92.21Ac from 92.65Ac on Friday. Australian markets are closed today for the Queens Birthday public holiday.

The kiwi weakened to 46.11 British pence from 46.46p on Friday. The Bank of England's 12-month ahead inflation expectations survey showed an increase to 2.2% from 1.9%, underpinning expectations that the BoE will follow the Fed in raising interest rates.

The local currency declined to 63.41 euro cents from 63.64 cents on Friday amid uncertainty about whether Greece can secure agreement with its creditors ahead of debt repayments due at the end of this month.

The kiwi fell to ¥88.29 from ¥88.82 on Friday.

(BusinessDesk)