NZ dollar holds near 88 US cents

File photo / NZ Herald

The New Zealand dollar held near 88 US cents for the fourth day in a row as traders await testimony from Federal Reserve chair Janet Yellen, due overnight, in which she may acknowledge an improving labour market, one of the prerequisites for raising interest rates.

The kiwi traded at 88.07 US cents at 5pm in Wellington, from 88.03 cents at the start of the day and from 88.14 cents late yesterday. The trade-weighted index was at 81.86 from 81.92 yesterday.

Yellen has previously indicated the Fed isn't in any rush to start raising interest rates from near zero but the US jobs market is on the mend, with payrolls rising by a higher-than-expected 288,000 workers in June, while the unemployment rate fell to 6.1 percent, the lowest in almost six years and a level the Fed didn't expect to see before year-end.

Her testimony will be delivered in the early hours of Wednesday morning New Zealand time, coming ahead of local consumer price index for second-quarter, which is widely expected to show inflation is accelerating.

Yellen "might be less dovish, which would push up the US dollar and weaken the kiwi," said Imre Speizer, senior market strategist at Westpac Banking Corp. "The employment numbers have been better."

Fed watchers will be listening for a "slight change of tone". Yellen is likely to be cautious, saying things are on the mend but the Fed has to keep policy accommodative, Speizer said.

There was little reaction in the kiwi dollar against the Australian dollar after the Reserve Bank of Australia released minutes of its last policy meeting, which showed that central bank determined to keep interest rates unchanged for now. The kiwi traded at 93.73 Australian cents from 93.63 cents at the start of the day and from 93.79 cents yesterday.

New Zealand second-quarter inflation figures due tomorrow are expected to show the consumer price index rose to 0.4 percent in the second quarter for an annual pace of 1.8 percent, according to a Reuters survey. That's closer to the mid-point of the 1 percent-to-3 percent range that the Reserve Bank targets and would keep intact expectations that governor Graeme Wheeler will raise the official cash rate to 3.5 percent this month.

The kiwi traded at 64.64 euro cents from 64.78 cents late yesterday and was little changed at 51.54 British pence. It traded at 89.45 yen from 89.38 yen yesterday.