The New Zealand dollar weakened as US labour market data strengthened the greenback, bolstering optimism of an upbeat US non-farm payrolls report today which may reinforce the case for the Federal Reserve to hike rates sooner than expected.
The kiwi slipped to 84.93 US cents at 8am in Wellington, from 85.03 cents at 5pm yesterday. The trade-weighted index edged lower to 79.67 from 79.71 yesterday.
The US dollar index, which measures the greenback against a basket of currencies, held at its highest level in more than 10 months as a measure of US labour costs monitored by the Fed had its biggest jump in more than five years while the four-week average of jobless claims fell to its lowest since 2006. The labour market data follows better than expected US second quarter GDP this week and is reinforcing optimism for strength in the US non farm payrolls report tonight.
"There's scope for further US dollar strength," said OMF senior foreign exchange dealer Martin Rudings. "For the remainder of the year, the US economy is going to continue to recover quite strongly. That's just going to help support the dollar. Maybe at some point this year, the Fed will come clean with an earlier Fed rate hike than what they are trying to say at the moment. All that will add into a stronger dollar and the kiwi and Aussie will probably come off."
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Trader reaction to the labour market data was muted as they await confirmation of the state of the US economy from the payrolls report tonight. Economists in a Reuters poll expect the data to show the US added 233,000 jobs in July. Should the data beat expectations, the kiwi and Aussie "may come off quite hard", Rudings said.
During local trading today, the kiwi will probably drift down towards 84.60 US cents, Rudings said.
The New Zealand dollar rose to 91.39 Australian cents from 91.24 cents yesterday ahead of Chinese manufacturing PMI data for due for release this afternoon. China is Australia's largest trading partner. Australia also has July house price data and quarterly PPI.
"We are seeing some buyers of kiwi against the Aussie and that looks like there is some room to go up," OMF's Rudings said.
The kiwi edged lower to 63.43 euro cents from 63.48 cents yesterday. European inflation unexpectedly slowed to 0.4 percent in July from 0.5 percent in June. That's the lowest inflation rate since 2009 in an environment where the European Central Bank is increasing stimulus to fight against the threat of deflation.
The local currency advanced to 50.30 British pence from 50.24 pence yesterday and was little changed at 87.36 yen from 87.37 yen.