NZ dollar drops below 70 US cents as Fed speakers talk up rate hike prospects

The New Zealand dollar fell below 70 US cents, touching a six-month low in US trading on Friday.

The New Zealand dollar fell below 70 US cents, touching a six-month low in US trading on Friday, as two Federal Reserve speakers talked up the prospect of further interest rate hikes in the US, trumping expectations the Reserve Bank will begin raising rates next year.

The kiwi traded at 69.66 US cents as at 8:30am in Wellington, having dropped to 69.27 cents in New York on Friday, from 70.27 cents in Asia at the end of last week. The trade-weighted index fell to 77.60, having dropped to 77.42 in New York, from 78.05 at 5pm in Wellington on Friday.

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Federal Reserve Bank of St. Louis President James Bullard told the Wall Street Journal that the US central bank should consider shrinking its balance sheet next year while saying more than one rate hike may be needed, a change of view for an official previously saying one increase was enough. Separately, Richmond Fed President Jeffrey Lacker said the Fed may need to raise rates more than three times in 2017. In New Zealand, traders will be watching for the ANZ Business Outlook, October building consents data and the Performance of Services Index today, the start of a week that includes the dairy auction and third-quarter gross domestic product.

"The US dollar has had an impressive rise since the US election and has potential to rise further during the months ahead," said Imre Speizer, senior markets strategist at Westpac Banking Corp, in a note. "The Fed's assertive tightening projections plus US fiscal expansion should maintain upside pressure on US interest rates and the US dollar. Against that, the NZ economy is strong and dairy prices have risen, but these forces are subservient to the US dollar's trend."

The kiwi fell to 95.31 Australian cents from 95.41 cents on Friday in Wellington. The local currency slipped to 4.8476 yuan from 4.8810 yuan and declined to 82.19 yen from 83.02 yen. It rose to 66.76 euro cents from 67.36 cents and dropped to 55.82 British pence from 56.62 pence.