New Zealand dollar falls, USD broadly higher ahead of Yellen

A drop in inflation expectations in New Zealand hurt the kiwi dollar on Monday. The currency was the biggest mover on major currency markets on Monday, diving more than one percent against its US counterpart. A quarterly Reserve Bank of New Zealand survey showed the market is bracing for declining inflation and easier monetary conditions.

One and two-year-ahead expectations of annual consumers’ price inflation have declined as per the survey. The one-year series decreased from 1.59% to 1.11% on a mean basis and the median fell to 1.0%.

The two-year-ahead inflation expectations decreased from 2.06% to 1.80%. The median remained at 2.0% but it compares to June 2014 rate of 2.36%.
By 0834 GMT, the New Zealand dollar was down 1 percent on the day to $0.7450.

The main risk event of the day will be Fed Chair Janet Yellen’s appearance before the US Senate Banking Committee. Her testimony will likely draw extra attention after dovish-sounding minutes from the Fed’s January meeting released last week dented expectations of an early interest rate hike.

Analysts are divided on whether she will be hawkish or dovish, although few think she is ready to take the sort of clear step toward a first hike that would spur another round of dollar gains.
The dollar rose to 119.58 yen by 09:00 GMT.

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