NZ dollar falls ahead of Fed rates outlook

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The New Zealand dollar fell in subdued trading as traders looked ahead to the GlobalDairyTrade auction this week and the release of minutes of the latest Federal Reserve meeting.

The kiwi traded at 71.75 US cents as at 5 pm in Wellington versus 71.84 US cents this morning and little changed from late New York trading on Friday. The trade-weighted index was at 78.15 from 78.35 in New York Friday.

"It's a fairly directionless market so far," said Sheldon Slabbert, a sales trader at CMC Markets in Auckland, noting it's a holiday weekend in the US and so trading is light. He said the next catalyst will be the GlobalDairyTrade auction overnight Tuesday and then "with the lack of data this week from the US, the focus will be on Europe to drive sentiment."

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He noted that the "arm wrestle" continues for the kiwi, which is caught between New Zealand's fairly resilient economic outlook and a growing view that the US Federal Reserve will lift rates in March. He sees fair-value slightly higher than its current level "so we could see the kiwi squeeze a little bit higher but all in all its a US dollar story at this stage," he said.

Earlier today, fourth quarter producer price index data pointed to inflationary pressures, which may add to the view that New Zealand's central bank won't be able to keep rates on hold for as long as it is forecasting. Prices paid by producers - input prices - rose 1 percent in the three months ended December 31, while output prices, or prices received by producers, rose 1.5 per cent, Statistics New Zealand said.

The central bank kept rates on hold at 1.75 per cent earlier this month and didn't signal any rate increases until mid-2019. Economists are expecting the central bank to lift rates at some point in 2018.

The local dollar traded at 57.78 British pence versus 57.82 in New York. The kiwi traded at 67.61 euro cents from 67.67 cents in New York. It was at 81.16 yen versus 81.06 yen and at 4.9264 yuan from 4.9304 yuan in New York on Friday. It was at 93.48 Australian cents from 93.56 cents last week.

New Zealand's two-year swaps rose four basis points to 2.36 while 10-year swap rates rose 1 basis point to 3.52 per cent.