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NZ dollar falls on US rate hike talk

NZ NewswireNZ Newswire 23/05/2016 Paul McBeth

The New Zealand dollar fell as traders gauged the possibility of US interest rates rising next month after Federal Reserve officials said a hike at the June meeting was still an option, stoking demand for the greenback.

The kiwi fell to 67.63 US cents at 8am in Wellington from 67.94 cents on Monday. The trade-weighted index declined to 72.84 from 73.08.

Traders are pricing in a 32 per cent chance the Federal Open Market Committee will raise the federal funds rate when it meets next month, having priced in a 5 per cent chance two weeks ago.

Recent speeches by central bankers have supported that line, and St Louis Fed President James Bullard and San Francisco Fed boss John Williams held to that view in speeches overnight.

"The generally modest reaction to date in equity, credit and FX markets to higher US interest rate expectations should provide the FOMC with a modicum of comfort," ANZ Bank said.

"With Fed hikes looking more imminent, the case for further rate cuts by the RBNZ and other central banks worried about local currency strength looks more tenuous in the current environment."

New Zealand's Reserve Bank has indicated it has scope to cut the official cash rate as a strong currency continues to hold down inflation.

But rising expectations for a US rate hike have prompted some forecasters to push out their timeframe, with Bank of New Zealand economists now predicting no change next month.

The local currency dropped to 73.85 yen from 74.65 yen as Japan's currency strengthened against the greenback after the country posted its biggest trade surplus in six years.

The kiwi was little changed at 93.61 Australian cents from 93.67 cents, declined to 4.4294 Chinese yuan from 4.4474 yuan, fell to 60.29 euro cents from 60.49 cents, and dipped 46.69 British pence from 46.79 pence.

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