US policy to impact on Tasman fortunes

Market watchers will have plenty to interest them when the United States Congress begins today (NZ time) what promises to be another year of combat and disagreement.

The first major area for disagreement is likely to come from US President Barack Obama and fellow Democrats trying to stem a growing gap between rich and poor.

The Democrat-led Senate plans to escalate the fight in coming weeks by bringing up for a vote a Bill to increase the federal minimum wage, which has stood at $US7.25 ($NZ8.75) an hour since July 2009. In New Zealand, the minimum wage is $13.75 an hour.

Mr Obama and the Democrats want the minimum wage to rise over three years to $US10.10 ($NZ12.20) an hour and then be indexed to inflation in the future.

Following Wall Street's slow start to 2014, the latest US jobs data will take centre stage, and whether Fed policy makers might announce further easing of their bond-buying programme after their meeting at the end of this month.

The week will see the release of the latest SDP employment report, weekly jobless claims and the monthly government jobs data.

The state of the American labour market forms a key ingredient to the Fed's market committee's take on the US economy's need for ongoing stimulus.

US employers are expected to have added 197,000 jobs in December, down slightly from the 203,000 jobs added in November, according to economists polled by Reuters.

The US unemployment rate is expected to remain at a five-year low of 7%.

In December, the Fed announced it was cutting $US10 billion ($NZ12.1 billion) from its bond-buying programme, taking the monthly purchase down to $US75 billion.

That gave strength to the New Zealand and Australian sharemarkets and currencies, an opposite reaction to that expected by brokers.

The Australian dollar rose past US90c for the first time in almost a month after Fed chairman Ben Bernanke called for more action to stimulate the American economy.

Early on Saturday, the Australian currency peaked at US90.07c, its highest level since December 12.

The Australian dollar has since fallen after traders, not expecting the currency to go any higher, sold and took profits.

Westpac New Zealand senior market strategist Imre Speizer said Mr Bernanke played down comments from other Federal Reserve officials who said interest rates might be raised once the Fed had tapered its economic stimulus programme.

''Fed chairman Bernanke said policy will remain accommodative despite quantitative easing tapering. Commodity currencies outperformed amid thin holiday conditions on Friday.''

Mr Speizer expected the Australian dollar to rise in the coming weeks, with US90c a possibility.

The New Zealand dollar hit a six-year high against the yen yesterday, and may trend higher this year, reflecting the divergent paths of the nations' central banks.

The kiwi reached 86.90 yen, the highest level since February 2008.

The New Zealand dollar has rallied 18% against the yen the past year as New Zealand's Reserve Bank prepares to lift the official cash rate from 2.5% to cool a reviving local economy while the Bank of Japan has pledged to keep interest rates low and eyes the prospect of further stimulus to boost inflation.

''The anticipation of pending rate rises, whether it comes in January or March, is adding to the strength of the kiwi dollar,'' OMF senior adviser Stuart Ive said.

''The yen is weakening. They are stimulating their economy and will continue to do so for at least the next year and a-half.

''It's the tale of two cities between the central banks. We have one that has clearly signalled they intend to raise rates in the near future while on the Japanese front they have no intention to do such a thing,'' he said.

Speeches this week by several Fed officials will also be monitored closely.

Tomorrow, Boston Fed bank president Eric Rosengren will talk on the economic outlook while San Francisco Fed bank president John Williams will speak on the economy and monetary policy.

Kansas City Fed bank chairwoman Esther George will discuss banking and the economy and Minneapolis Fed bank president Narayan Kocherlakota is set to talk in Minneapolis before St Louis Fed bank president James Bullard speaks on the economy on Friday.

In his last speech as chairman, Mr Bernanke said on Friday the central bank was no less committed to ''highly accommodative'' policy now it had trimmed its stimulus.

In order to help the economy recover from its 2007-09 recession, the Fed has held interest rates near zero since 2008.

The European Central Bank looks likely to start 2014 with interest rates on hold.

The ECB's policy-setting governing council is scheduled to hold its first meeting of this year on Thursday, but bank watchers are not projecting any new measures just yet after a surprise rate cut in November, taking the cash rate to 0.25%.

Other US economic data scheduled for release this week include report on factory orders and the ISM non-manufacturing index, international trade and wholesale trade.


At a glance

• First Senate vote today on renewing unemployment cheques

• Minimum wage vote expected in weeks

• US job data out this week will be closely monitored

• Federal Reserve likely to keep interest rates at zero


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