Kiwi heads for 3.1 percent weekly gain after Fed holds fire
NZ dollar heads for 3.1 percent weekly gain after Fed holds fire, local recovery continues
By Paul McBeth
Sept. 20 (BusinessDesk) - The New Zealand dollar is heading for a 3.1 percent gain this week after investors were taken by surprise when the US Federal Reserve decided not to slow its money printing programme and as the local economy continues to recover.
The kiwi rose to 83.79 US cents at 5pm in Wellington from 81.24 cents at the Monday open in its third weekly gain. It traded at 83.74 cent at 8am and 83.88 cents yesterday. The trade-weighted index increased to 77.97 from 77.86 yesterday, and is heading for a 2 percent weekly gain from 76.35 at the Monday open.
A BusinessDesk survey of nine traders and strategists on Monday predicted the currency would trade between 79.50 US cents and 83.50 cents this week. Five expected the currency to advance, and four picked a decline.
The kiwi has been a beneficiary of the Fed’s decision not to slow down its US$85 billion a month asset purchase programme as investors look for higher-yielding assets. Traders had been prepared for the greenback to rally after being devalued by the US central bank’s moves to operate negative interest rates.
Adding to the kiwi’s support were better-than-expected gross domestic product figures, with more growth in the second quarter than expected and upward revisions to previous periods. The figures showed increasing household consumption, something the Reserve Bank has warned may fuel rate hikes if it accompanied the growing property bubble in Auckland and Christchurch.
“The question is, have we got ahead of ourselves from an interest rate perspective? Can we really be looking to raise rates as much as the market thinks with the Fed pushing the boat out further,” said Alex Hill, head of dealing at HiFX in Auckland. “It was a big move (in the kiwi) and it’s thrown us into another range that we’ve been in before – we’ve got room up to 85 US cents and support down at 81.50.”
Traders are pricing in 83 basis points of increases to the 2.5 percent official cash rate over the coming 12 months, according to the Overnight Index Swap curve. Last week Reserve Bank governor Graeme Wheeler said interest rates will rise next year.
Government figures today showed net inbound migration continued to rise last month as fewer New Zealanders left the country for Australia. Bigger inward migration flows are seen as one of the drivers for rising house prices as a lack of supply struggles to meet growing demand.
The local currency climbed to 83.15 yen at 5pm in Wellington from 82.50 yen yesterday, and gained to 88.70 Australian cents from 88.41 cents. The kiwi was little changed at 61.88 euro cents from 61.99 cents yesterday, and gained to 52.21 British pence from 52.02 pence.