NZ dollar falls after Fed signals rates hikes are coming; Scottish, NZ votes loom

The New Zealand dollar fell after the Federal Reserve signalled rates hikes were on the cards in the coming year, fuelling demand for the greenback, and as the looming Scottish independence referendum and the local general election keep an element of uncertainty in the air for investors.

The kiwi traded at 81.05 US cents at 5pm in Wellington from 80.96 cents at 8am, down 81.84 cents yesterday. The trade-weighted index fell to 78.28 from 78.50 yesterday.

The US Dollar Index, a measure of the greenback against a basket of currencies, rallied after the Federal Open Market Committee raised its estimate for the federal funds rate by the end of next year, while maintaining guidance rates will stay low for a “considerable time.” The prospect of higher US rates has increased the lure of the greenback, while uncertainty about whether Scotland will leave the United Kingdom and the outcome of New Zealand’s general election dim the attraction of the pound and kiwi.

“I look at the Fed stuff as relatively hawkish – hikes will come harder than people expect, it’s the timing that’s the question,” said Tim Kelleher, head of institutional FX sales NZ at ASB Institutional in Auckland. “The whole move is not just broad-based, it’s a fundamental shift in the US dollar.”

ASB’s Kelleher said the local currency has strong support at 80.80 US cents, which is a four-year trend-line, and that was there “a bit of risk coming up tomorrow on the Scottish stuff and the election on the weekend.

Government figures today showed New Zealand’s economy grew 0.7 percent in the three months ended June 30, for an annual pace of 3.5 percent. That was largely in line with expectations.

The kiwi fell to 49.83 British pence at 5pm in Wellington from 50.35 pence yesterday, and edged down to 63.04 euro cents from 63.19 cents. It gained to 88.13 yen from 87.75 yen yesterday, and rose to 90.44 Australian cents from 90.17 cents.

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