NZ dollar drifts lower as investors eye outlook for Fed tapering in 2014

The New Zealand dollar is drifting lower in quiet holiday trading as investors bet the greenback is set to advance next year as the Federal Reserve pulls back on its monetary stimulus.

The kiwi slipped to 81.32 US cents at 5pm in Wellington from 81.55 cents at 8am. The trade-weighted index weakened to 77 from 77.18 this morning.

Investors will be keeping an eye on Fed speakers this week for clues as to the future pace of monetary stimulus in the world’s largest economy after the US central bank earlier this month said it would reduce its monthly pace of bond purchases in January by US$10 billion to US$75 billion. US 10-year bond yields edged up above 3 percent last week, touching their highest level in more than two years on optimism a revival in the US economy will see the Fed continue with its tapering though 2014.

“Whether or not we see US yields break that elusive 3 percent mark convincingly is going to be down to the Fed speak,” said Chris Weston, chief market strategist at IG Markets. “If US yields are moving up, emerging market currencies and some of the commodity related currencies in the G10 are going to struggle to find major upside against the dollar. The kiwi dollar is finding no love because of its association with commodity currencies.”

In an otherwise quiet week for currency markets, investors will be eyeing a speech by Fed Chairman Ben Bernanke, who is set to discuss the changing Fed in Philadelphia on Friday. Philadelphia Fed Bank President Charles Plosser and Fed Governor Jeremy Stein are also scheduled to speak in Philadelphia on Friday, while Richmond Fed Bank President Jeffrey Lacker will talk about the economic outlook in Baltimore.

“There’s a menagerie of Fed speakers coming though,” said IG’s Weston. “That, potentially, could have ramifications on the dollar and push it around.”

“The momentum probably is to the downside in the kiwi,” he said. “People are looking potentially to sell the rallies rather than buy the dips at the moment.”

In the US later today, a report is scheduled on pending home sales for November. Meanwhile, on Thursday investors will be eyeing a US report on December manufacturing.

The Institute for Supply Management’s manufacturing index unexpectedly rose in November to 57.3, the highest since April 2011. A reading around 56 for this month could push the kiwi higher, said IG’s Weston.

The New Zealand dollar was little changed at 91.85 Australian cents at 2pm from 91.97 cents at 8am.

The kiwi weakened to 59.16 euro cents from 59.29 cents this morning after touching 58.82 cents over the weekend, its lowest level in almost four months. Comments in Germany’s Bild newspaper from Jens Weidmann, the Bundesbank chief and a member of the European Central Bank Governing Council, helped the euro. He was reported saying low inflation shouldn’t be used to justify loose monetary policy.

The local currency fell to 49.34 British pence from 49.50 pence this morning after touching an 18-month low of 49.29 pence over the weekend. Strong British mortgage data is bolstering expectations the Bank of England may raise interest rates sooner than previously anticipated.

The New Zealand dollar slipped to 85.60 yen from 85.77 yen this morning. The International Monetary Fund may upgrade its growth forecast for Japan, although the nation must start fiscal and structural reforms in 2014, IMF first deputy managing director David Lipton said in an interview with the Financial Times.


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