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Kiwi slips ahead of Yellen's speech

NZ NewswireNZ Newswire 25/08/2016 Jonathan Underhill

The New Zealand dollar has fallen as financial markets await a speech from US Federal Reserve chairwoman Janet Yellen that may give a clearer view of US monetary policy and the greenback.

The kiwi fell to US72.97 cents as at 8am on Friday in Wellington, from US73.16c late on Thursday. The trade-weighted index slipped to 77.35 from 77.50.

The market is pricing in just 16 basis points of hikes this year by the Fed, with December seen as the most likely meeting if it does move, and any stronger hint of a hike by Ms Yellen would force traders to reprice that risk.

A Fed rate hike would amplify the effects of New Zealand's Reserve Bank in cutting interest rates, driving the kiwi lower, after governor Graeme Wheeler signalled he expects at least one further cut to the official cash rate.

"Most currencies continue to trade tight ranges ahead of Fed Chair, Yellen's scheduled speech tonight at the Jackson Hole symposium," said BNZ senior market strategist Kymberly Martin.

"Across risk assets, currencies bonds and commodities, ranges were fairly contained overnight. This reflects that a common factor in the performance of each is the outlook for US monetary policy. Markets are unwilling to express strong views on this ahead of tonight's appearance by Yellen."

Ms Martin noted that the recent high for 10-year US Treasuries was 1.63 per cent and said: "We would be stunned if the inherently cautious Ms Yellen proved the catalyst for US 10-year yields to break above recent range highs. But we stand ready to be surprised."

On Friday morning, the kiwi fell to 95.79 Australian cents from A95.92c and fell to 4.8569 yuan from 4.8665 yuan. It declined to 64.69 euro cents from 64.91c and was little changed at 55.36 British pence from 55.29p. It slipped to 73.41 yen from 73.50 yen.

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