NZ dollar rises after Yellen disappoints hawks and BOC lifts rates

Janet Yellen, chair of the US Federal Reserve was seen as dovish. Photo / AP

The New Zealand dollar rose after Federal Reserve chair Janet Yellen was seen as dovish and on some speculation that the New Zealand and Australian central banks may follow their Canadian counterpart and lift rates sooner rather than later.

The kiwi rose to 72.84 US cents as at 5pm from 72.59 US cents as at 8am in Wellington from 72.38 cents late yesterday. The trade-weighted index was at 77.91 from 77.56.

"Much of the gain can be attributed to the Fed walking back its strong rhetoric," said Sheldon Slabbert, a trader at CMC Markets. Yellen sounded cautious on inflation in testimony to the US House Financial Services Committee, pushing the greenback lower overnight and in Asian trading.

Slabbert said the fact that the Bank of Canada hiked its key rate a quarter point, the first increase since 2010, saying the Canadian economy no longer needed so much stimulus, also helped support the kiwi.

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While he said it was a "minority view," some people are questioning whether Canada's hike will mean other commodity-bloc currencies like New Zealand and Australian will also follow suit. "It may be a bit of a stretch, but all these little opinions have a few buyers attached to them as people push that view to the market and that's supportive of kiwi," he said.

He said domestic housing data earlier in the day may see some investors retreat from that view. New Zealand's median house price rose an annual 5.8 percent in June with strong growth outside of Auckland, according to the Real Estate Institute. However, sales volumes across the country have continued to decline, with Auckland slumping 33 per cent compared to June 2016 and nationally they're down 24.7 per cent for the same period.

He said it was too early to call a correction or a top "but the size of the slowdown in terms of volumes sales seems a little bit more than just seasonal and "could potentially keep the central bank on hold and that optimism on rate hikes in New Zealand and Australia could be walked back."

Looking ahead, he said Yellen's second day of testimony will be closely watched as will the first US corporate results from the banking sector later in the global trading day. "The earnings season is going to be a key test for overall risk sentiment," in particular as the banking sector is expected to perform well. Any surprises will create volatility, he said.

The kiwi rose to 63.69 euro cents from 63 cents late yesterday and rose to 82.36 yen from 82.06 yen. It rose to 4.9385 yuan from 4.9118 yuan and traded at 56.47 pence from 56.30 pence. The kiwi traded at 94.62 Australian cents from 94.55 Australian cents yesterday.

New Zealand's two-year swap rate fell 4 basis point to 2.25 per cent, and 10-year swaps fell 4 basis points to 3.32 per cent.