NZ dollar gains ahead of Fed meeting, dairy futures point to price increase

The New Zealand dollar gained ahead of a meeting of Federal Reserve officials which may see the world's biggest central bank give a clearer view on how the market should be pricing the direction of US interest rates, while locally, dairy futures are pointing to an increase in prices for the country's biggest export.

The kiwi rose to 68.21 US cents at 5pm in Wellington from 67.93 cents at 8am and 67.92 cents at the close of trading in NewYork last week. The trade-weighted index advanced to 72 from 71.89 last week.

Fed officials will hold a meeting on Monday in Washington to review and discuss the advance and discount rates charged by Federal Reserve banks. Some investors suspect that may give the central bank an avenue to make a unified statement after a series of speeches by officials over the past month divided market opinion on the pace and timing of interest rate increases this year.

"The meeting is to discuss the discount rates for the Federal Reserve banks, but it could be used as a platform for the Fed to make a very clear statement after four weeks of the fight between the doves and the hawks of the Fed," said Stuart Ive, senior dealer foreign exchange at OMF in Wellington. "If we saw them come out with a much clearer message, I'd expect the US dollar to gain some traction from that."

The New Zealand dollar also benefited from a rally in commodity prices on Friday which extended to dairy futures today, indicating another increase in whole milk powder.

OMF's Ive said the kiwi dollar will continue to take its cues from international events, with little local data until next week's inflation figures.

A BusinessDesk survey of 12 analysts predicts the kiwi will trade between 66 US cents and 70.15 cents this week, with seven expecting it to remain steady, three projecting a fall, and two forecasting it to gain.

The kiwi rose to 90.08 Australian cents from 89.85 cents on Friday in New York, and increased to 4.4097 Chinese yuan from 4.3895 yuan. It gained to 59.77 euro cents from 59.56 cents last week and advanced to 48.23 British pence from 48.06 pence. The local currency increased to 73.58 yen from 73.37 yen last week.

New Zealand's two-year swap rate rose one basis point to 2.18 percent, and 10-year swaps slipped one basis point to 2.92 percent.

(BusinessDesk)