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Kiwi tipped to fall on US rate hike bets

NZ NewswireNZ Newswire 23/05/2016 Tina Morrison

The New Zealand dollar may decline this week as the greenback powers higher on the back of encouraging comments on future interest rate hikes from Federal Reserve officials.

The local currency may trade between 66.17 US cents and 68.80 cents this week, according to 10 analysts in a BusinessDesk survey. Six expect the kiwi to decline, two bet it will gain and two say it will remain largely unchanged.

It recently traded at 67.75 US cents.

The US dollar index, which measures the greenback against a basket of currencies, has jumped almost 3 per cent this month amid growing expectations that the Fed may hike interest rates as soon as next month, increasing the lure of the nation's currency.

Last week's release of the minutes to the Federal Reserve Open Market Committee's April meeting showed the central bank was closer to hiking rates than traders had thought, prompting them to increase their bets and stoking demand for the greenback.

That sentiment may be further entrenched this week with several Fed officials scheduled to speak, including chair Janet Yellen.

"The Fed recently has taken quite a change in tack. Over the last two to three weeks, we have seen quite a difference in their outlook," said Sheldon Slabbert, sales trader at CMC Markets New Zealand.

"That is forcing a rebalancing in the interest rate differentials between kiwi and the US, so the US dollar really is the driving factor currently. Kiwi is facing a bit of pressure."

A stronger greenback may weigh on commodities, providing a further headwind for the kiwi, he said.

Locally, New Zealand publishes April merchandise trade data on Wednesday and the government's 2016 Budget is announced on Thursday.

Fonterra is holding its board meeting this week and may release its initial farmgate milk price forecast for the 2016/17 season on Thursday.

Dairy market analysts and rural economists surveyed by BusinessDesk expect a median forecast for next season of $4.60/kgMS.

That compares with a $3.90/kgMS forecast payout for the 2015/16 season and $4.40/kgMS in 2014/15.

DairyNZ estimates the average farmer required $5.25/kgMS to cover costs this season and hasn't yet finalised a break even price for next season.

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