NZ dollar drops from 3-week high as rising US wages stoke optimism

The kiwi traded at 69.60 US cents as at 8am in Wellington from 69.58 cents on Friday in New York.

The New Zealand dollar fell from a three-week high as demand for the greenback rallied after figures showed US wages rose at their fastest pace in seven years, heightening expectations for the Federal Reserve to hike interest rates.

The kiwi traded at 69.60 US cents as at 8am in Wellington from 69.58 cents on Friday in New York, down from 70.14 cents at the close of New Zealand trading last week. The trade-weighted index declined to 77.34 from 77.61.

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US non-farm payrolls showed the US added 156,000 jobs last month, fewer than expected, though average wages rose 2.9 per cent, the fastest pace in seven years. The inflationary effect of higher wages added to the theme of an aggressive round of rate hikes by the Federal Reserve this year, and investors will be closely watching central bankers speaking this week, including Fed chair Janet Yellen.

"As the market factored in the prospect of more prompt Fed rate hikes, the USD strengthened," Bank of New Zealand market strategist Kymberly Martin said in a note. "The NZD/USD has rebounded a bit from its late-December lows. However, on Friday night, like most of its peers, it succumbed to post-payrolls, USD strength."

The greenback spent much of last week in the doldrums as investors questioned the impact of US president-elect Donald Trump's spending programme, while at the same time the People's Bank of China took steps to limit capital leaving the world's most populous nation, causing the yuan to appreciate. The kiwi fell to 4.8146 Chinese yuan as at 8am from 4.8453 yuan last week in Wellington.

The local currency rose to 81.44 yen from 81.20 yen last week and declined to 95.37 Australian cents from 95.62 cents. It increased to 56.85 British pence from 56.59 pence last week, and slipped to 66.07 euro cents from 66.24 cents.