The New Zealand dollar held below US73c amid growing expectations the US Federal Reserve will hike rates more aggressively this year after solid jobs data in contrast to the Reserve Bank which will likely reiterate it won't raise rates anytime soon.
The kiwi traded at US72.91c at 5pm versus US72.92c at 8am and US73.01c on Friday in New York. The trade-weighted index was at 74.58 from 74.69 last week.
The greenback got a boost when the US non-farm payrolls report showed wages growing at their fastest pace in more than eight-and-a-half years, leading futures markets to price in the risk of three or even more rate rises from the Federal Reserve this year as inflation expectations were stoked. At the same time, New Zealand's Reserve Bank is tipped to keep the official cash rate unchanged and retain a flat outlook at this Thursday's review.
Sheldon Slabbert, a trader at CMC Markets, said the greenback was back in favour "as the Fed clearly will be raising rates in March" while New Zealand's rate outlook will weigh on the kiwi in the short term due to the narrowing rate differential, he said. New Zealand's OCR at 1.75 per cent compares to the fed funds rate target range of 1.25-to-1.5 per cent
The Reserve Bank's first monetary policy review of the year on Thursday will be key for markets, said Slabbert. Inflation is "still benign and the housing market is slowing," he said. "They don't have too much ammunition to be too hawkish."
