NZ dollar falls as greenback strengthens after inflation report, Yellen speech

File photo / NZ Herald

The New Zealand fell as the US dollar strengthened following signs of rising US inflation and after Federal Reserve chair Janet Yellen said interest rates were on track to increase this year.

The kiwi slipped to 73.02 US cents at 8am in Wellington, from 73.20 cents at the New York close and 73.84 cents at 5pm on Friday in Wellington.

The trade-weighted index dropped to 75.98 from 76.30 on Friday.

The US dollar index, which measures the greenback against a basket of currencies, touched its highest in almost four weeks as investors became more confident that a strengthening US economy would lead to US interest rate hikes this year.

While US inflation gained just 0.1 per cent in April, a slower pace than the 0.2 per cent gain the previous month, the measure of core inflation, which strips out volatile food and energy costs, advanced 0.3 per cent, the largest increase since January 2013.

Yellen's comments in a speech that the US is on track for a rate increase this year further strengthened the greenback.

"The US dollar gained very sharply after an upside surprise in US core inflation," Bank of New Zealand currency strategist Raiko Shareef said in a note.

"We might be at the end of the broad US dollar sell-off, which has prevailed since mid-March. Investors look exceedingly keen to jump back on the strong US dollar story, upon any evidence than the Fed remains on track for a September lift-off in rates."

Currency markets are likely to be quiet at the start of this week, with US market closed for the Memorial Day holiday and UK markets closed for a Bank holiday, Shareef said.

The New Zealand dollar edged lower to 93.14 Australian cents from 93.22 cents on Friday, advanced to 66.34 euro cents from 66.27 cents, gained to 47.17 British pence from 47.12 pence, and fell to 88.75 yen from 89.21 yen.