NZ dollar drops in volatile markets

File photo / NZ Herald

The New Zealand dollar weakened in volatile trading amid investor uncertainty about the policy direction of the US Federal Reserve.

The kiwi traded between 78.84 US cents and 79.96 cents overnight and was at 79.41 cents at 8am in Wellington from 79.73 cents at 5pm yesterday. The trade-weighted index slipped to 76.94 from 77.20 yesterday.

Currency markets were volatile overnight after conflicting signals from Fed officials about whether the US may continue its stimulus programme for a longer period of time, which would be negative for the US dollar, or if it may raise interest rates sooner than expected, bolstering demand for the greenback.

Within hours of each other, Philadelphia Fed President Charles Plosser said the market must prepare for rate rises to begin sooner than previously anticipated, while St Louis Federal Reserve president James Bullard said that the Fed should consider delaying the end of its bond-buying programme to help boost inflation.

"The word for the night is volatility. The currencies have been caught in the crossfire," said Kevin Morgan, OMF senior dealer, foreign exchange.

"The US dollar is getting whipped around," Morgan said. "There is a lot of uncertainty in the market about US Fed policy and overnight we have had conflicting comments from Fed officials in the States. We are getting washed around in a sea of volatility which is coming from the States. We are seeing a bit of a panic at the moment and investors are unsure what to do.

"Sentiment generally is still negative on the kiwi dollar but every now and again we are seeing a bit of a bounce whenever there is a selloff in the US dollar."

OMF's Morgan expects the kiwi to trade between 78.90 US cents and 80.10 cents today.

Tonight, traders will be eyeing a speech by Fed chair Janet Yellen. The US also has house building data and consumer confidence reports.

The New Zealand dollar slipped to 90.60 Australian cents from 90.71 cents yesterday, weakened to 62.04 euro cents from 62.19 cents, dropped to 49.42 British pence from 49.88 pence and fell to 84.30 yen from 84.58 yen.