NZ dollar gains on soft US inflation

  • 29/03/2016

By Paul McBeth

The New Zealand dollar gained as slower inflation in the US prompted traders to dial back the timing of further Federal Reserve interest rate hikes.

The kiwi rose to 67.24 US cents at 8am in Wellington from 66.84 cents at 5pm on Monday and 66.82 cents on Friday in New York. The trade-weighted index advanced to 71.71 from 71.52 last week.

The US dollar index fell after the PCE deflator, the Fed's preferred measure of inflation, rose 1 percent in February from a year earlier, slowing from a pace of 1.3 percent.

Traders are assessing how aggressively the Fed will raise interest rates after it embarked on a tightening cycle last year as the US economy remains in good heart, even as global commodity prices remain weak and financial markets are volatile.

"The USD has traded lower in the early hours of this morning after the release of data showing the US Fed's preferred inflation measure (the PCE deflator) slipped," BNZ's Kymberly Martin said.

"The USD declined along with US short-end yields, as the market ponders prospects for further Fed rates hikes this year."

Investors will continue to monitor Fed officials' rhetoric, which has largely been talking up the strength of the economy, and chair Janet Yellen will deliver a speech on Tuesday in New York. US employment data on Friday will also be closely watched.

The local currency gained to 89.14 Australian cents from 88.92 cents on Monday and climbed to 4.3740 Chinese yuan from 4.3533 yuan. It increased to 60.01 euro cents from 59.87 cents, and was little changed at 47.18 British pence from 47.28 pence. The kiwi rose to 76.16 yen from 75.92 yen.