The New Zealand dollar is heading for a 5.4 per cent decline against the greenback this year, with US interest rates the main focus for 2018.
The kiwi traded at 67.05 US cents at 1pm in Wellington, largely unchanged from Friday, and down from 70.86 cents at the start of the year. The trade-weighted index was at 73.28 from 73.37 last week, and is heading for a more muted 1.2 per cent annual decline from 74.15.
The greenback spent much of 2018 on the rise as robust economic growth at the start of the year supported what was seen as an increasingly aggressive rate-hiking programme at the US Federal Reserve under new chair Jerome Powell. The Fed ended up raising the federal funds rate four times this year, finishing 2018 in a 2.25-to-2.5 per cent band. However, growing fears about the potential impact of an all-out trade war between China and the US saw investors rein in their expectations for rate hikes next year, removing some of the greenback's tailwind.
"We had four hikes this year, but hikes in 2019 and beyond have been pared back significantly as time has gone on," said Mike Shirley, an FX and interest rate sales dealer at Kiwibank. "The kiwi drifted lower for most of the year then started to recover."
While the Fed was raising interest rates, most other central banks around the world remained on hold, including New Zealand's Reserve Bank. Governor Adrian Orr spent much of the year talking down the kiwi by talking up the chance of an interest rate cut from what was already a record low 1.75 per cent in the official cash rate.