Kiwi slips as Fed signals rate hike
The New Zealand dollar struggled to gain traction against the US dollar after the US Federal Reserve kept alive plans for another rate hike this year while pushing higher against the yen after the Bank of Japan kept monetary policy steady.
The kiwi slipped to US72.08c as at 5pm from US72.22c on Thursday, following the Fed decision. It was at 80.14 yen from 79.16 yen on Thursday after the statement from the BOJ, which also upgraded its assessment of private consumption and overseas growth, signalling its confidence that an export- driven economic recovery was gaining momentum.
The US dollar remained firm in the Asian trading session after the Federal Open Market Committee was relatively hawkish on Thursday, releasing its plan for balance sheet reduction earlier than expected and keeping the interest rate outlook unchanged. “US inflation indicators and the Fed are expected to be the key drivers of the NZD outlook for the rest of the year,” said Bank of New Zealand currency strategist Jason Wong.
“By contrast, NZ monetary policy will take the back seat, with the RBNZ’s clear policy guidance that rates won’t be changing for a long time,” said Wong. Sixteen economists surveyed by Bloomberg all expect no change in the official cash rate next Thursday.
The gross domestic product data “supports our view that the RBNZ is likely to sit on its hands and keep the official cash rate unchanged at 1.75 per cent for an extended period. We maintain our view that the RBNZ will not hike interest rates until late 2018,” said Kiwibank chief economist Zoe Wallis.
A trader at ASB Bank said investors had moved in to sell the kiwi against the Australian dollar yesterday after iron ore prices held up. It pared some of its losses, however, and was at A95c from A94.88c on Thursday.
BNZ’s Wong expects the kiwi to hover around the A95c level for the rest of the year, “so for exporters a buy- on- dips strategy remains appropriate”. The kiwi fell to 56.44 pence from 56.64p late on Thursday, and rose to 64.67c from € 64.36c.