NZ dollar falls after Fed statement

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The New Zealand dollar fell after the latest Federal Reserve statement kept intact speculation that the US central bank will continue with the two rate hikes it has flagged for 2017, starting with one in June.

The kiwi fell to 68.82 US cents as at 5pm in Wellington from 69.48 cents late yesterday. The trade-weighted index dropped to 74.95 from 75.37.

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The Federal Open Market Committee downplayed signs of weakness in the US economy this year, saying it "views the slowing in growth during the first quarter as likely to be transitory" while inflation was running close to its target and consumption "remained solid". Meanwhile, the Reserve Bank of New Zealand releases its monetary policy statement on May 11 with little to suggest inflation has welled up since its last review and with a kiwi dollar that's dropped 5.4 per cent on the trade-weighted basis this year and is sitting below the 76.1 level the bank projected it to average in the second quarter.

"It's a relative story. The Fed didn't give us that additional little bit of language that we're locked and loaded for next month but it also said (economic weakness in) the first quarter is likely to be transitory," said Robert Rennie, chief currency strategist at Westpac Banking Corp, which is expecting Fed hikes in June and December.

Rennie said he will be watching for the Reserve Bank's comments in the monetary policy statement next week about the TWI given its weakness in an absolute sense and the fact that "the market generally has been running short positions on the kiwi".

"I'm sure many central banks are happy the Fed is on a path to normalisation and the RBNZ would be one of them," he said. Still, "I can't get too bearish about the kiwi below 68 cents," he said.

The kiwi dollar gained yesterday after government figures showed jobs growth of 1.2 per cent, a faster pace than the growth in population. Still, while there were signs of a tightening labour market, wage growth remained subdued meaning it won't drive up inflation and forced the Reserve Bank to contemplate raising the official cash rate. Traders are awaiting US non-farm payrolls for April, due out on Friday in the US and expected to show the world's largest economy added 210,000 jobs last month, after a weaker-than-expected 98,000 in March.

The kiwi rose to 92.75 Australian cents from 92.51 cents late yesterday. It fell to 4.7403 yuan from 4.7872 yuan and declined to 77.60 yen from 77.84 yen. It slipped to 63.11 euro cents from 63.55 cents and dropped to 53.39 British pence from 53.81 pence.
The two-year swap rate rose 1 basis point to 2.30 per cent and 10-year swaps rose 4 basis points to 3.39 per cent.