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NZ dollar heads for weekly fall

NZN 18/05/2017

The New Zealand dollar fell, and is heading for a 0.4 per cent weekly decline, as a scandal surrounding Brazil's President Michel Temer took the spotlight off US President Donald Trump and the US economy.

The Kiwi dollar fell to 68.89 US cents at 5pm in Wellington from 69.28 cents late Thursday. The trade-weighted index fell to 74.75 from 75.06.

There was evidence the US economy is strong enough to warrant higher interest rates. The Philadelphia Fed business outlook index for May jumped to 38.8, about twice the 18.5 level estimated by economists and a Reuters poll revised up the forecast for US GDP in the second quarter.

Separately, Loretta Mester, president of the Federal Reserve Bank of Cleveland, said the Fed needed to keep raising rates if economic conditions continue as expected and also should begin the process of shrinking its balance sheet.

"If quantitative easing debased the US dollar then quantitative tightening should have the opposite effect," said Mark Johnson, senior dealer at OMF.

"The market has pretty much priced in that the Fed will hike in June."

Fed funds futures are pricing in a 70 per cent chance that the Federal Reserve will raise interest rates in June.

The Brazilian real tumbled on allegations Mr Temer condoned bribery payments to a witness in a corruption probe. He has vowed not to resign.

The Kiwi dollar surged to 2.3192 real from 2.1743 real Thursday.

Reports about Mr Temer almost pushed Mr Trump off the front pages.

Speculation has mounted about the risks to Mr Trump of the ongoing Federal Bureau of Investigation probe into links between his team and Russian officials ahead of the election and his subsequent sacking of FBI director James Comey.

The New Zealand dollar was little changed at 92.775 Australian cents from 92.86 cents. The Kiwi slipped to 61.99 euro cents from 62.17 cents and fell to 53.17 British pence from 53.42 pence.

It dropped to 76.72 yen from 77.01 yen and declined to 4.7480 yuan from 4.7745 yuan on Thursday.

New Zealand's two-year swap rate was unchanged at 2.22 per cent and 10-year swaps dropped 6 points to 3.21 per cent.

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