Dollar extends post-payrolls dip; kiwi leaps on rate hike view

© Reuters. FILE PHOTO: U.S. dollars are counted by a banker at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking/File Photo

By Tom Westbrook

SINGAPORE (Reuters) - The dollar drifted lower on Tuesday and the kiwi rose most among other majors as investors brought forward rate hike expectations for New Zealand, following a strong business survey, while pressure for U.S. hikes eased in the wake of mixed jobs data.

Sterling rose 0.3% to a one-week high of $1.3888 as markets looked forward to England becoming the first major country to formally start living with the coronavirus by dropping COVID-related curbs in a fortnight's time.

The euro ticked 0.1% higher to $1.1872 and the yen rose by about the same margin to 110.83 per dollar. The New Zealand dollar jumped as much as 0.8% to $0.7035.

The Aussie rose 0.5% to $0.7563 but was largely unmoved by the Reserve Bank of Australia holding rates and paring its bond purchases - all mostly as expected.

The moves extended a dip in the dollar since U.S. labour market data last week that was upbeat but not so strong as to risk bringing forward the day when the Federal Reserve might start tapering its asset buying.

"I think the market has just felt a bit of relief," said Bank of Singapore currency analyst Moh Siong Sim.

"Now that we've got (U.S. jobs data) out of the way, we're seeing a little bit of dollar pullback. I don't think it's going to be a big dollar pullback, but the next catalyst to worry about - U.S. jobs or inflation - is still some time away."

In the meantime, market pricing is shifting quite quickly in New Zealand. Bonds were reeling and the kiwi leapt above its 20-day and 200-day moving averages, after a business survey showed a sharp improvement in mood and a warning on labour supply.

With closed borders and a COVID-free population, businesses said times were good and they had raised prices, but they had never found it so hard to find workers - prompting economists at two local banks to forecast rate hikes in November.

"It is very clear that record amounts of monetary stimulus are no longer needed to support the economy and inflation risks are getting too high for comfort," said ASB economist Jane Turner in a note which brought forward forecast hikes from May.

The kiwi also hit a one-month high against the Aussie amid a growing contrast between the pressures on the Reserve Bank of New Zealand and the tone from the RBA.

Australia's central bank said it would taper bond purchases, as expected, but left its cash rate at a record-low 0.1% on Tuesday and said it was likely to stay there until 2024.

"The RBNZ has always been one of the more hawkish central banks of late, but that call for bringing a rate hike in to 2021 just highlights the divergence between the RBA and the RBNZ," said Commonwealth Bank of Australia (OTC:CMWAY) strategist Kim Mundy.

"The economic outlook in both countries is quite similar but one central bank is potentially about to pull the trigger three years ahead of the other." The RBNZ meets next week.

Elsewhere a sharp rise in oil prices following abandoned talks among producers about output levels lent support to exporter currencies such as the Norwegian crown and Canadian dollar.

On the horizon later in the day - when U.S. markets return from a holiday - is a U.S. services survey and a German sentiment survey.

Then on Wednesday the minutes from the Federal Reserve's June meeting, in which it made a hawkish projection for rate hikes in 2023, might offer more insight to the shift in thinking.