Dollar jumps 1USc overnight after Yellen signals caution

The New Zealand dollar rose a cent against the US dollar overnight after Federal Reserve chairwoman Janet Yellen reiterated that she is cautious about future US interest rate hikes.

The kiwi jumped to 68.57USc at 8am in Wellington, from 67.50USc at 5pm yesterday. The trade-weighted index increased to 72.69 from 71.96 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, declined after Mrs Yellen was cautious about hiking interest rates in her first comments since the Fed decided this month to keep interest rates on hold. She reiterated that it was appropriate to "proceed cautiously" in raising rates, saying the inflation outlook had become more "uncertain", and highlighted two key risks, slowing growth in China and further declines in commodity prices, particularly oil.

"The US dollar gapped lower on the prepared speech by Mrs Yellen early this morning," Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. "Rather than pushing back on the market's recent dovish assessment of the Fed's position, she simply confirmed that view."

At its meeting earlier this month, the Fed lowered its projected path for interest rate increases, suggesting it saw just two quarter-point increases this year, down from four forecast in December. After Mrs Yellen's speech overnight, traders are now pricing in just a 66% chance of a quarter-point hike by the end of the year, Ms Martin said.

The New Zealand dollar was the strongest performer of its peers against the US dollar overnight, Ms Martin said. It faced resistance approaching 69USc, which is the top of its range since finding a base in September last year, she said.

Tonight, traders will be eyeing the release of the US ADP employment report ahead of the key US non-farm payrolls report on Friday.

In New Zealand today, February building consents data and the Westpac McDermott Miller regional economic confidence survey for March are scheduled for release. Elsewhere, Australia and China have consumer confidence reports due.

The New Zealand dollar advanced to 89.73Ac from 89.23Ac yesterday, increased to 47.67 British pence from 47.40 pence, gained to 60.67 euro cents from 60.28 cents, rose to ¥77.31 from ¥76.62 and jumped to 4.4594 yuan from 4.3922 yuan.

(BusinessDesk)