The New Zealand dollar fell after Federal Reserve chair Janet Yellen kept open the chance of a rate hike next month as the world's biggest central bank tightens monetary policy, pushing up yields on US Treasuries and stoking demand for the greenback.
Janet Yellen told the Senate Banking Committeet it would be "unwise" to wait much longer before raising rates further, as the economy "continues to show signs of strengthening". "We don't yet have enough clarity on what changes will be put in place to really clearly factor those policy changes into the economic outlook".
Based on the Fed's economic projections for this year, it could raise interest rates three times in 25 basis-point steps.
But Yellen also noted some trends which would force her other, more dovish hand - wage pickup and widespread improvements in the labor market.
Financial markets specialist Professor James Angel from Georgetown University explained why: "Often politicians will want central banks to do things that are short term expedient, but long term risky for the economy".
In her semiannual report to the Senate Banking Committee, Yellen said that the US labor market continues to strengthen, but she urged the government to focus on improving the long-run productivity of the economy.
The banking sector jumped after Yellen's comments on interest rates, while rate-sensitive sectors such as utilities and real estate slumped. But traders are pricing in just two rate increases - in June and December.
Yellen may see a reason to raise the odds of a March rate increase "close to 50 percent and make March live", Bank of America strategists Ralf Preusser and Shyam Rajan wrote in a note Friday.
USA stocks on Tuesday had small gains and losses.
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With the announced departure in early April of Fed Governor Daniel Tarullo, Trump can fill three of the seven Fed Board seats.
Doing so, however, would further strengthen the dollar - which is already stronger than it has been in more than a decade (too strong, according to the president) - much to the detriment of Trump's economic plans.
Yellen's hawkish tone dovetailed with recent comments from other Fed officials. But Trump and his allies argue that the law has imposed too many constraints on banks, thereby slowing lending and economic growth.
Senators pressed Yellen about the Fed's views on how limiting immigration would potentially impact the USA economy.
But the Fed's policy also pushed yields on safe United States government bonds much lower, forcing investors who wanted decent returns to buy riskier assets.
The Dow Jones Industrial Average .DJI rose 92.25 points, or 0.45 percent, to 20,504.41, the S&P 500 .SPX gained 9.33 points, or 0.40 percent, to 2,337.58 and the Nasdaq Composite .IXIC added 18.62 points, or 0.32 percent, to 5,782.57.
Yellen agreed an executive order from the president calling for a review of the usefulness of current polices and regulations could be helpful.
Silver: $18.01 US per ounce.