NZ dollar near two-month low on speculation US rates are set to rise

The New Zealand dollar held near a two-month low against the greenback as recent data from the world's biggest economy keep investors upbeat on the prospects for US interest rates to rise before the end of the year.

The kiwi traded at 71.67USc  at 5pm in Wellington from 71.69USc at 8am and 71.87USc  yesterday. The trade-weighted index was at 76.44 from 76.53 yesterday.

Stronger than expected activity in the US's non-manufacturing activity sectors kept investors optimistic the Federal Reserve will raise the federal funds rate this year and gave some traders enough confidence to pencil in an outside chance of a move as early as next month. Fed officials have been relatively upbeat in their assessments of the economy and traders will be focused on non-farm payrolls figures on Friday in Washington, which is a notoriously volatile data series.

"If it (non-farm payrolls) matches market expectations at 180,000-odd, you'd start to see people firm up expectations (for a rate hike) even more," said Philip Borkin, senior economist at ANZ Bank New Zealand in Auckland. ANZ expects the kiwi to fall to 71USc by the end of the year, and extending that decline to the mid-60s by mid-to-late 2017, "predicated on that view the Fed is going, with December looking odds on, and that the Reserve Bank is cutting as well."

Mr Borkin said there was still a lot supporting the kiwi dollar's strength and its gradual decline was primarily due to the greenback.

New Zealand's Reserve Bank is expected to lower the official cash rate a quarter point to 1.75 percent in November, and some economists are projecting it will cut again next year.

Central banks have been in focus this week with speculation the European Central Bank may scale back its quantitative easing programme, which would push interest rates higher and reduce the kiwi's appeal.

Mr Borkin said central banks have started to "run out of ammunition" and markets will start having to focus on fiscal policy responses to encourage economic activity.

New Zealand's two-year swap rate rose two basis points to 2.04 percent and 10-year swaps gained three basis points to 2.57 percent.

The local currency was almost unchanged at 63.99 euro cents from 64.05 cents yesterday and traded at 56.32 British pence from 56.22 pence. It increased to 94.27 Australian cents from 94.11 cents yesterday and rose to ¥74.12 from ¥73.87. It decreased to 4.7793 Chinese yuan from 4.7927 yuan yesterday.

(BusinessDesk)

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