NZ dollar gains as Fed pulls back US growth outlook

Photo / NZ Herald

The New Zealand dollar gained against the greenback after a soft forecast from the US Federal Reserve underpinned support for the local economy amid emerging signs of growth in New Zealand.

The currency yields were in the spotlight yesterday after the Federal Open Markets Committee cut its forecast for the US economic growth to 2.7 per cent to 2.9 per cent this year, down from 3.1 per cent to 3.3 per cent previously, and confirmed interest rates would remain a near zero for an extended period.

That contrasted with the New Zealand economy, where the market is pricing in 60-basis points of rate hikes over the next 12-months according to the overnight swap curve, prompting investors hunting for higher yields to increase to positions in the kiwi.

Credit card data yesterday showed New Zealanders are becoming more comfortable about spending again, even as households continue to retire debt.

"The currency was driven by the divergent interest rate story overnight," said Mike Burrowes, a market strategist at Bank of New Zealand. "We rose against the US greenback while most of the other majors fell."

The kiwi recently traded at 81.52 US cents, up from 81.35 cents yesterday, and rose to 70.47 on the trade-weighted index of major trading partners' currencies from 70.20. It gained to 77 Australian cents from 76.72 cents previously, and climbed to 65.46 yen from 65.25 yen. It rose to 56.72 euro cents from 56.50 cents yesterday, and gained to 50.65 pence from 50.21 pence previously.

Currency traders will be waiting for Prime Minister John Key's address in Christchurch today, where he is expected to release a scheme which will help clarify for Canterbury residents the category and classification of their properties damaged by a spate of earthquakes.

The kiwi dollar may trade between 81.20 US cents to 82 cents, Burrowes said, with the currency likely to consolidate around these levels