NZ dollar gains as Fed minutes show inflation view split, commitment to trim balance sheet

The kiwi dollar traded at 73.54 US cents as at 8am in Wellington. Photo / 123RF

The New Zealand dollar gained as minutes of the last Federal Reserve policy meeting showed some concern that inflation isn't as strong as expected, although policymakers appear committed to unwinding the Fed's massive balance sheet.

The kiwi rose to 73.06 US cents as at 8am in Wellington from 72.34 cents late yesterday. The trade-weighted index climbed to 77.05 from 76.52.

The minutes said that many participants at the meeting "saw some likelihood that inflation might remain below 2 per cent for longer than they currently expected" with some seeing a risk inflation may dwindle. That would reduce the need for another rate hike anytime soon.

However, the minutes also showed a commitment to reducing the Fed's US$4.2 trillion holding of Treasury bonds and mortgage-backed securities, with some traders saying an announcement could come in September.

The Fed minutes "show debate about timing of the next rate hike but broad agreement regarding starting balance sheet rundown 'soon', leaving September in play for an announcement on the (conditional) timing of it," said Sharon Zollner, senior economist at ANZ Bank New Zealand, in a note.

The US dollar index fell about 0.4 per cent, taking it back to levels it was at two days ago.

Also weighing on the greenback was US President Donald Trump's announcement that he was disbanding the American Manufacturing Council and Strategic and Policy Forum after some corporate executives quit the business forums after Trump blamed recent violence in Charlottesville, Virginia, on both white nationalists and anti-racist protesters.

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Zollner said that in domestic news, "all eyes will be on ANZ Roy Morgan Consumer Confidence figures today to see whether a slowdown in the housing market is impacting prospective spending trends and the wider economy. Such signals would be NZD negative."

Second-quarter producer prices are also due for release today as well as Australian employment data for July.

The kiwi rose to 80.50 yen from 80.07 yen yesterday. It traded at 92.23 Australian cents from 92.32 cents and rose to 4.8891 yuan from 4.8385 yuan.

The kiwi gained to 62.06 euro cents from 61.60 cents and rose to 56.71 British pence from 56.20 pence.