NZ dollar jumps a US cent after Fed pulls back forecast interest rate hikes

The kiwi increased to 67 US cents at 8am in Wellington, from 66.04 cents at 7am when the Fed statement was released, and 65.98 cents at 5pm yesterday. 
Photo / iStock
The kiwi increased to 67 US cents at 8am in Wellington, from 66.04 cents at 7am when the Fed statement was released, and 65.98 cents at 5pm yesterday. Photo / iStock

The New Zealand dollar jumped a cent against the US dollar after the Federal Reserve pulled back its expectations for US interest rate hikes this year, on concern about the impact of slower global growth.

The kiwi increased to 67 US cents at 8am in Wellington, from 66.04 cents at 7am when the Fed statement was released, and 65.98 cents at 5pm yesterday. The trade-weighted index rose to 71.65 from 70.83 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, dropped to its lowest in more than a month after the Fed left the target range for the benchmark federal funds rate at 0.25 percent to 0.5 percent as expected and lowered its projected path for increases this year, citing the potential impact from weaker global growth and financial-market turmoil on the US economy.

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The median of policy makers' updated quarterly projections, known as the dots, saw the rate at 0.875 percent at the end of 2016, implying two quarter-point increases this year, down from four forecast in December.

READ MORE:
Fed keeps rates steady - fewer hikes for 2016

"The Federal Reserve left interest rates unchanged, as universally expected, but halved its expected degree of rate hikes in 2016, from four to two on a weaker growth outlook," ANZ Bank New Zealand senior economist Sharon Zollner and senior foreign exchange strategist Sam Tuck said in a note. "The dovish surprise from the Fed sent US dollar sharply lower and New Zealand dollar squeezed harder than other currencies."

ANZ expects the kiwi to trade between 66.10 US cents and 67.60 cents today.

The focus in New Zealand will now turn to today's release of fourth-quarter gross domestic product data, which is expected to show economic growth slowed to a 0.7 percent quarterly rate from a previous rate of 0.9 percent, and to 2.1 percent on an annual basis from 2.3 percent.

ANZ's expectation is below the consensus, for a 0.6 percent quarterly rate and a 2 percent annual rate.

"On the face of it such a growth rate is respectable, but it would barely keep pace with population growth," ANZ said. "The quarter is expected to show solid growth in the construction, services and core manufacturing sectors offsetting weather-related weakness in primary sector production and manufacturing. Looking forward, tighter financial conditions and weak commodity prices look set to act as a brake on the economy, and we expect growth to slow below trend."

Elsewhere, employment data for February released in Australia today is expected to show the unemployment rate held steady at 6 percent. The New Zealand dollar advanced to 88.90 Australian cents from 88.47 cents yesterday.

The local currency advanced to 59.79 euro cents from 59.43 cents yesterday, gained to 47.08 British pence from 46.69 pence, increased to 4.3651 yuan from 4.3015 yuan and rose to 75.48 yen from 74.80 yen.

- BusinessDesk

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