NZ dollar declines in quiet trading during US holiday, focus on Fed tapering, NZ house price data

The New Zealand dollar declined in quiet trading during a US holiday as investors mulled the prospects that a stronger US economy will prompt the Federal Reserve to pull back on monetary stimulus.

The kiwi slipped to 82.43 US cents at 8am in Wellington, from 82.82 cents at the 5pm market close yesterday. The trade-weighted index weakened to 77.06 from 77.41 yesterday.

Investors are mulling the possibility that the Fed may start tapering its US$85 billion a month bond buying programme as early as December on optimism about a revival in the world's largest economy following better than expected growth and labour market data. Tapering the stimulus programme would strengthen the greenback as it would reduce the amount of US dollars in circulation.

"Fed tapering expectations have returned to the fore and should hurt NZD/USD multi-week," Imre Speizer, markets strategist at Westpac Banking Corp. in New Zealand, said in a note. "A quiet overnight session saw little movement of note. It was a partial holiday in the US (Veterans Day), with bond markets closed, and there was little influential news."

Should the kiwi fall through support at 81.90 US cents, it may fall into the high 70's, Speizer said.

In New Zealand today, traders will be eyeing the Real Estate Institute house price report for October. The Reserve Bank on Oct. 1 introduced restrictions on low equity mortgage lending in an attempt to cool a bubbling housing market that could threaten financial stability.

"This usually second tier data has taken on greater importance of late," Kymberly Martin, strategist at Bank of New Zealand, said in a note. "The market is scrambling to find hard data that shows the impact of recently implemented loan to value ratio restrictions on banks. "

Data in October may be bolstered by buyers using their pre-approvals from banks ahead of the restrictions taking hold, Martin said.

"A very soft outcome could see the NZD slump as the market assumes evidence that LVRs are 'biting' would mean fewer OCR hikes will be required further down the track," Martin said. However investors shouldn't discount momentum elsewhere in the economy, she said.

The New Zealand dollar slipped to 88.08 Australian cents from 88.26 cents yesterday ahead of a NAB business confidence survey in Australia today.

The kiwi dropped to 61.47 euro cents from 61.97 cents yesterday and weakened to 51.56 British pence from 51.71 pence. The local currency edged lower to 81.79 yen from 81.96 yesterday.

(BusinessDesk)