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NZ dollar slips as better-than-expected US data bolsters case for Fed hikes

27 Feb 2015

The New Zealand dollar fell as the greenback advanced after better-than-expected US data on inflation and business orders bolstered confidence about the outlook for the world's largest economy.

The kiwi slipped to 75.31 US cents at 8am in Wellington, from 75.63 cents at 5pm yesterday. The trade-weighted index was at 78.22 from 78.26 yesterday.

The dollar index, which measures the greenback against a basket of currencies, jumped to a five-week high after a report showed US core inflation, which excludes volatile food and energy costs, rose 0.2 percent, ahead of the 0.1 percent expected by economists in a Reuters poll. Separate data showed US durable orders rebounded 2.8 percent in January, ahead of the 1.7 percent forecast and a turnaround from December's 3.7 percent decline. The reports strengthened the case for the Federal Reserve to raise interest rates this year.

"The US economy appears sound under the hood, with rising core inflation an indication that Fed fund hikes are a matter of when and not if," ANZ Bank New Zealand senior FX strategist Sam Tuck and senior economist Mark Smith said in a note. "This keeps the Fed on track to commence its tightening cycle around the middle of the year."

Also helping the US dollar, St. Louis Federal Reserve chief James Bullard, who is a non-voter on Fed policy, told CNBC television the US central bank should next month drop its reference to "patience" when referring to tightening monetary policy. He also said the strong dollar was having only a marginal impact on US monetary policy and the economy.

In New Zealand today, building consent data and an ANZ business confidence report are scheduled for release.

The New Zealand dollar advanced to 96.49 Australian cents from 96.25 cents yesterday, and was unchanged at 89.95 yen ahead of Japanese inflation data today.

The local currency rose to 48.86 British pence from 48.64 pence yesterday after a report showed the UK economy expanded 0.5 percent in the fourth quarter, matching expectations.

The kiwi touched 67.41 euro cents, approaching its post-float high of 67.63 cents reached in January. It was trading at 67.24 euro cents at 8am, from 66.52 cents at 5pm yesterday.

ANZ said the plummet in the euro may be related to options trading, and the kiwi could reach a new high against the European common currency today, with an expected range of 67 cents to 68.30 cents.

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