U.S. dollar rallies on Fed rate hike

The New Zealand dollar fell in the lead-up to the Federal Reserve’s policy meeting which is expected to deliver its first interest rate rise in nearly a decade.

New Zealand’s two-year swap rate was down two basis points to 2.78 percent at 5pm in Wellington, and 10-year swaps fell seven basis points to 3.65 percent.

The Swedish crown rose to a day’s high against both the dollar and the euro after the Riksbank kept rates unchanged. The overnight gains triggered a surge in Japan’s Nikkei on Thursday.

Moves in short-term U.S. Treasuries were modest, after touching 1.021 percent on Wednesday, a 5-1/2 year high, yields on two-year notes US2YT=RR were last at 0.9966 percent.

“Enquiries for first quarter material are coming in…”

Investors are primed to focus on the Federal Open Market Committee policy statement, projections on the economy and the policy path and a news conference with Fed Chair Janet Yellen.

Analysts said some traders’ surprise that the Fed’s rate forecasts were not reduced continued to support the dollar. Despite this, USA equities gained and the financial markets were overall calm in their reaction.

“Certainly there is going to be some linkage but the reason that oil has fallen isn’t because of the strength of the dollar it is largely because of the huge influx of supply and production growth across the world, particularly in North America”, said Zirin. This week’s Global Dairy Trade auction provided initial New Zealand Dollar support by showing another rebound in the price of New Zealand’s most lucrative export.

“Given all the concerns, there is a risk that the Fed could opt for a dovish rate hike and downgrade the path for future rate increases”, said Yujiro Goto, currency strategist at Nomura.

The dollar edged back from a near one-week high versus a basket of other major currencies with Citi, the FX market’s single biggest player, saying positioning in the dollar against the euro was now basically neutral following a clearout over the past fortnight.

“The Fed is gradually moving higher whereas other central banks, including the European Central Bank and the Bank of Japan, are maintaining accommodative policy”, said Eric Viloria, currency strategist at Wells Fargo Securities in NY. Australian stocks .axjo climbed 1.6 percent, while South Korea .ks11 put on 0.8 percent.

The dollar was little changed against the yen and euro on Tuesday as crude oil and equity prices took a breather after a recent slide.

The Fed yesterday lifted its funds target rate to between 0.25% and 0.5%. Sterling hit a roughly eight-month low against the dollar of $1.48685.