Dollar rises after weak US data ahead of Fed interest rate decision

The New Zealand dollar rose after weaker US data raised concerns the Federal Reserve may push out plans to raise interest rates this year.

The kiwi advanced to 74.45 US cents at 8am in Wellington, from 74.19 cents at 5pm yesterday. The trade-weighted index was little changed at 76.70 from 76.75 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, fell after a report showed a decline in US durable goods orders. The non-defence capital goods orders excluding aircraft, a proxy for business spending plans, fell 0.6 percent in December following a similar drop in November. The data comes ahead of the Federal Reserve Open Market Committee's decision on interest rates, scheduled for release tomorrow morning New Zealand time.

"The US dollar weakened after weak durable goods data and as markets pared back positions ahead of the FOMC," ANZ Bank New Zealand senior economist Mark Smith and senior FX strategist Sam Tuck said in a note. "Weakness in durable goods data suggests that business investment likely contracted in the fourth quarter, which looks to slow growth momentum. The issue for markets and policymakers is the extent that the US economic expansion can roll on despite a number of headwinds.

"Sharp increases in the US dollar and weakness in global markets appear to be hitting the bottom line, with weaker than expected corporate earnings reported by a number of large US companies. While markets are worried lower earnings will feed into cuts to investment spending and layoffs, it is still early days. Markets await the FOMC tomorrow for direction."

The kiwi will probably trade between 73.70 US cents and 75 cents today, ANZ said.

New Zealand Prime Minister John Key will today outline his government's plans to overhaul social housing in his first major speech of 2015. Labour Party leader Andrew Little gave his State of the Nation speech, and said a government he leads would target bringing down the unemployment rate.

Traders are awaiting the New Zealand Reserve Bank's decision on interest rates tomorrow. While no change to the 3.5 percent benchmark rate is expected, some economists expect the bank to remove its tightening bias.

The New Zealand dollar rose to 93.96 Australian cents from 93.51 cents yesterday ahead of Australian fourth quarter inflation figures today. A weak inflation number may fuel speculation the Reserve Bank of Australia could cut interest rates when it meets next Tuesday.

The kiwi slipped to 48.96 British pence from 49.14 pence yesterday even though UK fourth quarter gross domestic product data showed the economy slowed more than expected. The UK economy expanded 0.5 percent in the fourth quarter, from a 0.7 percent pace in the third quarter and lower than the 0.6 percent pace expected.

The local currency slipped to 65.53 euro cents from 66.02 cents yesterday and was little changed at 87.71 yen from 87.70 yen.

(BusinessDesk)