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NZ dollar sinks to lowest level for year

NZ Newswire logoNZ Newswire 5/03/2017 Jonathan Underhill

The New Zealand dollar fell to its lowest level this year on a trade-weighted basis after Federal Reserve chair Janet Yellen affirmed market expectations of a rate hike this month and the prospect of further increases.

The kiwi dollar traded at US70.30c as at 8:30am in Wellington from US70.38c cents in late New York trading on Friday.

The TWI fell to 69.95, having touched 76.83 in New York, the lowest since December 24, and from 77.15 in Wellington at the end of last week.

Yellen said the central bank will "likely" raise interest rates at a meeting this month "if the economic data continue to come in about as we expect" and that policymakers will consider at the meeting whether further adjustments are required.

On Friday, Fed funds futures showed a 94 per cent chance of a hike this month.

Helping stoke the view of a US economy gaining momentum was the US non-manufacturing ISM for February, which printed at 57.6 versus expectations of 56.5.

"More upward momentum [in the US dollar] is likely if the impressive run of US data continues and as the market moves to price in more monetary policy tightening," Con Williams, rural economist at ANZ Bank New Zealand, said.

"In contrast, NZ's data pulse is expected to show a moderating pace and dairy prices look set for a large fall."

On Friday, futures were pointing to a 7 per cent decline in milk powder prices at the GlobalDairyTrade auction this week after Fonterra Cooperative Group said it would lift the volume of whole milk powder and skim milk powder offered in coming auctions by about 25,000 tonnes due to favourable weather pushing up supply.

Locally today, traders will be watching for January building permits data for an update on the pace of the housing market, which has been a key concern of the Reserve Bank.

US labour market data rounds out the week, with economists forecasting the US economy added 185,000 jobs in February while the unemployment rate slipped to 4.7 per cent from 4.8 per cent.

The New Zealand dollar traded at 92.58 Australian cents from 92.67 cents in New York on Friday and down from 93.12 cents in Asia at the end of last week.

The local currency slipped to 57.16 British pence from 57.26 pence in New York and fell to 66.23 euro cents from 66.29 cents.

It dropped to 80.02 yen from 80.25 yen and 4.8413 yuan from 4.8537 yuan.

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