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Kiwi dips ahead of US Fed policy update

NZ NewswireNZ Newswire 25/07/2016 Paul McBeth
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The New Zealand dollar has dipped as investors prepare for the US Federal Reserve's policy review this week and will be looking for signs the world's biggest central bank will raise interest rates later this year.

The kiwi slipped to US69.79 cents at 5pm on Monday in Wellington from US69.89c at 8am and US69.97c on Friday in New York.

The trade-weighted index decreased to 74.98 from 75.06 last week.

The Federal Open Market Committee will update policy on Tuesday in Washington, and investors anticipate chairwoman Janet Yellen will be more positive in her view after stronger than expected manufacturing and employment data in recent weeks.

That would support the greenback, adding to last week's 1.7 per cent decline for the kiwi on the growing expectation New Zealand's Reserve Bank will cut rates next month.

"Obviously, the Fed's not going to hike this week, but they may come out with a slightly more upbeat assessment of where the US is at," said Stuart Ive, senior dealer foreign exchange at OMF.

"Kiwi and Aussie rate cuts are fully priced in now and the currency reflects that so momentum has stalled - we need new information and we may get that later on from the FOMC."

If the FOMC isn't as optimistic as investors hope, Mr Ive said the kiwi could retrace some of its recent losses before resuming a longer-term trend lower.

The New Zealand dollar fell to 93.35 Australian cents from A93.65c last week ahead of Australian inflation data on Wednesday, which investors will use to gauge whether the Reserve Bank of Australia will further cut interest rates next week.

On Monday, it dropped to 4.6598 Chinese yuan from 4.6705 yuan last week and was little changed at 74.17 yen from 74.20 yen. It fell to 63.58 euro cents from 63.73c last week and slipped to 53.14 British pence from 53.36p.

New Zealand's two-year swap rate increased one basis point to 2.04 per cent and 10-year swaps were up one basis point to 2.44 per cent.

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