NZ dollar falls as traders eye Fed meeting

The New Zealand dollar fell as traders mulled the prospects for an optimistic US Federal Reserve primed to raise interest rates when it reviews policy this week, which would stoke demand for the greenback.

The kiwi fell to 77.43 US cents at 5pm in Wellington from 77.61 cents at 8am and 77.76 cents on Friday in New York. The trade-weighted index declined to 78.04 from 78.56 last week.

The Federal Open Market Committee is expected to increase its forecast track for the federal funds rate and drop its reference to keep interest rates near zero for a considerable time as a slew of economic data shows the world’s biggest economy is on the path to recovery. That’s encouraged traders to pre-empt an optimistic Fed, buying US dollars before trading slows to a snail’s pace during the Christmas and New Year holidays.

“There’s quite a natural expectation that this ‘considerable time’ phrase will be removed and the Fed outlook for rates will increase,” said Raiko Shareef, currency strategist at Bank of New Zealand in Wellington. “For the US dollar to come out significantly stronger, you’d need to see a significant upgrade in the language above.”

Commodity currencies, including the kiwi dollar, started the week on the back foot as West Texas Intermediate crude oil for January delivery fell to US$57.81 a barrel on the New York Mercantile Exchange on Friday, rounding out a 12 percent weekly slump driven by concerns global production will outstrip demand.

Traders will be eyeing the GlobalDairyTrade auction on Wednesday for a steer on prices for New Zealand’s primary commodity export, alongside third quarter balance of payments figures that same day and gross domestic product on Thursday.

The Reserve Bank of New Zealand today announced the new weightings for the trade-weighted index, which has been expanded to include 17 currencies from the previous five-currency benchmark. The new weightings take effect from Wednesday, and put greater emphasis on the country’s modern trade profile.

BNZ’s Shareef said the new weightings were largely in line with expectations, and should lead to a faster decline in the trade-weighted index in the future with the heavier tilt to China’s yuan, which is in an appreciation cycle and as Chinese authorities allow their nation’s currency to trade more freely. The kiwi declined to 4.7957 yuan from 4.8105 yuan on Friday in New York.

The kiwi fell to 91.92 yen at 5pm in Wellington from 92.36 yen last week after sitting Prime Minister Shinzo Abe’s Liberal Democratic Party won a sweeping mandate in yesterday’s election, which he called to secure support for his economic reforms.

The local currency decreased to 94.13 Australian cents from 94.25 cents last week, and increased to 62.62 euro cents from 62.39 cents. It edged down to 49.30 British pence from 49.46 pence on Friday in New York.