Dollar heads for 0.4% weekly dip after Fed embarks on rate hike cycle

The New Zealand dollar is heading for a 0.4 percent weekly dip after the Federal Reserve raised interest rates for the first in almost a decade, ending a near-zero rate policy that's been in place since the global financial crisis.

The kiwi slipped to 66.90 US cents at 5pm in Wellington from 67.19 cents on Friday in New York last week. It traded at 67.03 cents at 8am, down from 67.25 cents yesterday. The trade-weighted index fell to 73.20 from 73.40, and down from 73.32 last week.

A BusinessDesk survey of 11 analysts predicted the kiwi would trade between 64.50 US cents and 69.50 cents this week. Eight picked it to rise, while three predicted it to fall.

The Federal Open Market Committee raised the federal funds rate a quarter point to between 0.25-and-0.5 percent this week, confirming the start of a tightening cycle that had been well-telegraphed by the central bank. Chair Janet Yellen emphasised future increases will be gradual, though the Fed's projections indicated four quarter-point hikes in 2016.

"The market probably made their plays for this Fed move and now are either rejoicing and are going to enjoy the holiday period, or are licking their wounds and consoling themselves," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "The kiwi failed to add any more momentum from yesterday which is hardly surprising - the market's just going to go full into Christmas mode now."

OMF's Ive said the kiwi has more support on a trade-weighted basis, though the prospect of an El Nino drought could pose a threat to the economy.

Local data today showed New Zealand firms are ending the year on a more positive note, with business confidence rising to an eight-month high in the ANZ Business Outlook survey.

New Zealand's two-year swap rate was down two basis points to 2.78 percent at 5pm in Wellington, and 10-year swaps fell seven basis points to 3.65 percent.

The kiwi was little changed at 82.31 yen from 82.40 yen yesterday ahead of the Bank of Japan's policy review which is expected to keep interest rates near zero, and affirm its quantitative easing programme.

The local currency gained to 93.91 Australian cents from 93.72 cents yesterday, and fell to 4.3358 Chinese yuan from 4.3588 yuan. It dropped to 61.68 euro cents from 62.04 cents yesterday, and slipped to 44.87 British pence from 45.01 pence.

(BusinessDesk)