The New Zealand dollar weakened overnight, weighed down by a rising US dollar and changing expectations for Reserve Bank interest rate rises.
The kiwi slipped to 83.24 US cents at 8am in Wellington, from 83.41 cents at 5pm yesterday. The trade-weighed index fell to 78.63 from 78.74 yesterday.
The US dollar index, which measures the greenback against a basket of currencies, hit its highest level in 13 months as better than expected US consumer confidence and manufacturing reports reinforced speculation that the Federal Reserve may bring forward plans to raise interest rates. Meanwhile in New Zealand, traders are pushing out expectations for interest rate hikes as weaker commodity prices dent growth. Traders are now pricing in an 84 percent chance of a Reserve Bank hike in March, and just a 19 percent chance in December, according to Overnight Index Swap data.
"The interest rate market is taking off interest rate hikes that have been priced into the market over the next 12 months and that's just taken the steam out of the kiwi," said Martin Rudings, senior dealer, foreign exchange at OMF. "A lot of people have been buying kiwi in anticipation of interest rate hikes and I think now that they are pricing them differently, the currency people are selling out of the kiwi dollar.
"The path going forward looks like further downside for the kiwi," Rudings said. "The kiwi certainly looks like the ugly currency, along with the euro. The backdrop is a stronger US dollar. The market is starting to come around to the fact that we are likely to see a stronger US dollar. That's not only because of the perception that interest rates in the US will rise earlier than the Fed has predicted, but also by default because there's not many currencies out there that look very good at the moment."
