NZ dollar gains on 'dovish' Yellen


The US economy is healthy enough for the Fed to raise rates and start winding down its massive bond portfolio, but low inflation may leave the central bank with diminished leeway, Yellen said at her semiannual appearance before Congress on Wednesday. Interest rate markets are now tipping the first rate hike to come in June 2018 versus the central bank's forecast of September 2019. Mainland China markets were mixed, with the Shanghai Composite trading higher by 0.08%, but the Shenzhen Composite was just below the flat line.

On a regulatory matter, Yellen said that the Fed had the power to remove directors of banks, but she did not give any specific commitments to do so regarding specific circumstances when pressed by Sen.

The bellwether Philippine Stock Exchange index (PSEi) ended nearly flat, inching down 0.01% or 1.52 points to 7,936.85.

Federal Reserve Chair Janet Yellen's second day of testimony on Capitol Hill also attracted attention, with the central bank chief appearing before the Senate Banking Committee.

If progress on inflation stalls, "they are more likely to initiate a longer pause in the rate hike cycle", said Michael Gapen, chief U.S. economist at Barclays Capital in NY.

In her prepared statement on Wednesday, Yellen favored a gradual shrinkage of Fed's balance sheet, which is expected to stay "appreciably smaller than the current $4 trillion".

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Investors are focused on USA consumer price index and retail sales data, due on Friday, Lien said. A key takeaway from the first round of the testimony was concerns raised over softening inflation, which may encourage market participants to re-evaluate the pace of monetary tightening this year.

But Yellen's upbeat assessment of the United States economy buoyed U.S. stock markets.

Technology shares moved north on Wednesday, for the fourth successive session.

The broader Technology Select Sector SPDR (XLK) advanced 1.3%, emerging as one of the best performing sectors of the S&P 500.

Borkin said if the numbers show an "inching higher" from an underlying and core perspective the market will be happy to continue to price in hikes and keep the NZD supported but "if its weaker across the board, you'll see the kiwi follow suit", he said. The government agency reported a decline of 7.6 million barrels in USA crude stockpiles for the week ended July 7. Brent crude, used to price global oils, added 4 cents to $47.78 per barrel.

Westpac's Imre Speizer said the recent gains also had been helped by a lift in commodity prices.