Federal Reserve rate hike will affect Kiwi mortgages

US Federal Reserve chair Janet Yellen is expected to raise interest rates. Photo / AP

NZ homeowners will be looking to US Fed which is expected to lift interest rates today

Homeowners will get a steer today on the direction of their mortgage interest rates after US Federal Reserve chair Janet Yellen delivers what is expected to be an official interest rate hike -- her first for 2016.

The Fed is widely expected to announce an increase in the target range for its federal funds rate to between 0.5 per cent and 0.75 per cent when the two-day Federal Open Market Committee (FOMC) meeting ends today. Yellen's first rate hike for the current cycle was last December.

The announcement, due at 8am NZ time, is also expected to have a bearing on the direction of world sharemarkets.

Imre Speizer, senior markets strategist at Westpac, said markets were treating the US rate hike as a done deal.

"Therefore, what is more interesting is the tone of that statement and what they do with their interest rate projections and economic forecasts. In short, the market will not be looking to see if interest rates rise -- that's a given. They are going to watch for gains as to what they do next year," Speizer said.

"Of course, when US interest rates go up our interest rates go up as well, so that's why our five-year mortgage rates are rising, even though the Reserve Bank has its official cash rate on hold."

The Reserve Bank last month cut its official cash rate to 1.75 per cent in what has largely been seen as its last cut in the cycle.

The US central bank, at today's announcement, is also expected to indicate the likely track for rates next year, and any departure from the general expectation of two more more rate hikes in 2017 is likely to provoke a market reaction.

A more aggressive approach by the Fed on the interest rate front is likely to put upward pressure on the US dollar, which would put downward pressure on the New Zealand dollar, analysts say.

US bond yields have been rising since Donald Trump's success in the presidential election, with the benchmark US 10-year rate this week hitting 2.5 per cent for the first time since 2014, up from 1.72 per cent just before the election.

Senior Republicans pushed back against an aggressive fiscal package overnight, saying that debt levels were already at dangerous levels.

ANZ analysis

ANZ said the Fed's indicative interest rate track over the coming years might take into account both the surge in US bond yields and the prospects for fiscal stimulus from infrastructure spending and tax cuts.

"The apparent push back against Donald Trump's campaign agenda adds to expectations that the FOMC will remain cautious for now," ANZ said in a commentary.

"The consensus expectation remains that the FOMC won't move its economic forecasts or interest rate projections meaningfully [today] or at least until it becomes clear what Trump's actual fiscal agenda is.

"Senior Republicans pushed back against an aggressive fiscal package overnight saying that debt levels were already at dangerous levels and argued for deficit-neutral tax cuts and noted intended private sector involvement in infrastructure."

ANZ said the market was pricing a 66 per cent chance of another increase by the Fed before June.