Dollar heads for 1.6% weekly fall as greenback finds favour on rate hike view

The New Zealand dollar is heading for a 1.6 per cent weekly fall against the greenback. Photo / 123RF

The New Zealand dollar is heading for a 1.6 per cent weekly fall and may see further downside as the greenback gains on the prospect of further interest rate increases by the Federal Reserve.

The kiwi dollar fell to 72.40 US cents as at 5pm in Wellington from 73.23 cents late yesterday and was down from 73.57 cents last Friday in New York. The trade-weighted index was at 74.40 from 74.92.

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The US dollar gained traction in the Asian trading session after upbeat economic data raised expectations for further rate increases by the Fed.

The number of Americans claiming new unemployment benefits fell last week for the third time in four weeks, data from the Labor Department showed, Dow Jones Newswires reported.

Also, the Conference Board Leading Economic Index, which measures US business trends, rose 0.3 per cent to 109 in March, following increases for the index in January and February.

"Certainly the kiwi and the Aussie have fallen out of favour and the US dollar got a bit of a lift, we see this continuing," said Martin Rudings, a senior dealer at OMF.

"There is a sense the market is changing assets a wee bit and coming to the realisation that carrying other currencies can be costly if you hold on to them for too long," he said.

Rudings said comments from Reserve Bank governor Adrian Orr to Radio NZ that inflation is likely to remain benign seemed to indicate domestic rates could be on hold for longer.

"It just means the differential will continue to widen and I think the market has just decided it's time to shed some of the assets that are going to start costing them," he said.

Looking ahead, investors will be watching for Australian inflation data out next week, which is likely to be around 1.9 per cent annualised versus 1.1 per cent in New Zealand. "That's going to fuel further downside in the Aussie-kiwi cross," he said.

The kiwi traded at 93.82 Australian cents from 93.77 late yesterday. It declined to 4.5494 yuan from 4.5866 yuan and fell to 58.60 euro cents from 59.13 cents. The kiwi traded at 77.91 yen from 78.63 yen and at 51.41 British pence from 51.56 pence yesterday.

New Zealand's two-year swap rate fell 1 basis point to 2.29 per cent and the 10-year swap rate rose 3 basis points to 3.21 per cent.