NZ dollar pares gain in lead up to Fed review, annual current account deficit narrows

The New Zealand dollar pared gains as investors refrained from taking any new positions ahead of the US Federal Reserve’s policy review, and after government figures showed the current account deficit narrowed in the year to June 30.

The kiwi traded at 81.83 US cents at 5pm in Wellington from 81.97 cents at 8am, up from 81.61 cents yesterday. The trade weighted index was little changed at 78.51 from 78.47 yesterday.

Traders are awaiting the outcome of the two-day Federal Open Market Committee meeting, where Fed chair Janet Yellen may indicate a shift away from the zero-interest rate policy the central bank has been running since the global financial crisis. A report by Wall Street Journal Fed commentator Jon Hilsenrath speculated the Fed would maintain its pledge to keep interest rates low for a ‘considerable time’, sapping some support for the greenback, which has been gaining on the prospect of higher rates.

“A lot of people out there have taken a break ahead of the Fed – it’s quite a big event for the market if they do indicate higher rates,” said Martin Rudings, senior dealer foreign exchange at OMF in Wellington. “If we get some further declines in commodity prices, that would open the for the kiwi to probably go below 80 US cents, as would the Fed indicating earlier interest rate hikes.”

Government figures today showed New Zealand’s annual current account deficit narrowed to $5.8 billion, or 2.5 percent of gross domestic product, in the June quarter, from $6 billion, or 2.7 percent fo GDP in March. The data came out after the latest auction on Fonterra Cooperative Group’s GlobalDairyTrade platform showed dairy prices edging up from a two-year low, with gains in whole milk powder, the biggest product sold by volume.

New Zealand’s second-quarter GDP figures are due tomorrow, and economists expect growth of about 0.5 percent in the three months ended June 30.

OMF’s Rudings said he’s optimistic about New Zealand’s growth prospects in the coming year, with an appreciating greenback and subsequent decline in the kiwi likely to be boon for exporters.

The local currency was little changed at 50.25 British pence from 50.33 pence ahead of the Thursday referendum on Scotland’s independence.

The kiwi rose to 87.76 yen at 5pm in Wellington from 87.53 yen yesterday, and fell to 90.17 Australian cents from 90.58 cents. It edged up to 63.19 euro cents from 63.08 cents.

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