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Kiwi sinks to US69c in 'perfect storm'

NZN 9/03/2017 Jonathan Underhill

The New Zealand dollar traded at about US69 cents, having dropped more than 6 per cent in the past four weeks on expectations the Federal Reserve will start hiking interest rates next week while the Reserve Bank will keep its official cash rate at a record low for the foreseeable future.

The kiwi fell to US69c as at 5pm in Wellington from 69.63c late Wednesday and down from as high as 73.74c on February 7.

Market bets on a Fed rate hike at its policy meeting next week have been above 90 per cent and those views were underlined overnight with the release of ADP private sector employment data for February, which showed 298,000 jobs created, compared with expectations for 187,000.

That boosts the prospects for a strong non-farm payrolls number from the Labor Department on Friday and has stoked speculation the Fed will have to tighten monetary policy more than the market currently expects.

By contrast, New Zealand economic indicators have come off the boil, including a 1.8 per cent drop in manufacturing sales in the fourth quarter, while dairy prices extended their slide at this week's GlobalDairyTrade auction.

"It's a perfect storm against the kiwi. A new cyclical direction for the kiwi is underway," said Graham Parlane, private client manager at OMF.

"The interest rate yield advantage is currently only 1 per cent on the cash rate and that's clearly going to narrow as the Fed hikes more."

The local currency rose to A91.86c from 91.59c on Wednesday and fell to 4.7758 Chinese yuan from 4.8041 yuan.

It declined to 56.75 British pence from 57.02 pence and fell to 65.52 euro cents from 65.89 cents.

The kiwi traded at 79.02 yen from 79.15 yen on Wednesday

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