NZ dollar holds gains after Yellen sticks to plan

New Zealand's two-year swap rate increased one basis point to 2.65 per cent at 5pm in Wellington, and 10-year swaps rose one basis point to 3.46 per cent.

The New Zealand dollar held on to its gains after Federal Reserve chair Janet Yellen signalled the US central bank still intends to continue tightening monetary policy, although conditions had become less supportive.

The kiwi was trading at 66.57 US cents at 8am in Wellington, from 66.59 cents at 2am, ahead of Yellen's testimony to the House Financial Services Committee in Washington, and up from 66.17 cents at 5pm yesterday.

There were no obvious catalysts for the kiwi to step higher yesterday evening, although it appeared driven by a global currency movements rather than the local currency, analysts said.

In her semi-annual testimony, Yellen signalled confidence in the US economy, and confirmed her expectation for "gradual increases" in the central bank's key target interest rate. Still, she noted downside risks including tighter US financial conditions, persistently low inflation, a higher US dollar, global markets turmoil and risks for Chinese growth and the Chinese currency, implying that if they continued, the Fed may keep rates on hold.

See live rates for the NZ-US $ below. Click for more information:

"It's not like she's saying that the previous normalisation path is now off the table and they are going to stay flat, she is not saying that, she is saying that that path is still the intent but there are now risks to that," said Imre Speizer, senior market strategist at Westpac Bank in New Zealand. "What you would take out of it is that March is a no-go but at some point that they still want to hike rates."

The New Zealand dollar hardly reacted, he said, noting it is currently consolidating between 66 US cents and 67 cents.

"There are question marks about the US dollar, that is pushing kiwi/US up, there's also question marks about global risk, that's pushing kiwi down, so it's roughly locked in place at the moment until any one of those things changes," Speizer said.

In New Zealand today, the BNZ-BusinessNZ performance of manufacturing index for January is released at 10:30am. Real Estate Institute monthly housing data may also be published.

The New Zealand dollar advanced to 93.81 Australian cents from 93.67 cents yesterday, gained to 59.12 euro cents from 58.59 cents, increased to 45.90 British pence from 45.72 pence, and rose to 4.3743 yuan from 4.3480 yuan. It was little changed at 75.88 yen from 75.84 yen yesterday.

The trade-weighted index gained to 72.30 from 72.01 yesterday.
Markets across Asia may be quieter than usual today with China still out for the week-long Lunar New Year holiday, and Japan closed for its National Foundation Day holiday.