NZ dollar drops 1% as Fed more upbeat about US economy; RBNZ awaited

Thursday 30th October 2014

The New Zealand dollar dropped 1 percent after the Federal Reserve was more upbeat about the outlook for the US economy than expected in its policy statement this morning, strengthening the greenback.

The kiwi dropped as low as 78.25 US cents from 79.37 cents immediately before the Fed statement at 7am New Zealand time and from 79.19 cents at 5pm yesterday. It was trading at 78.51 cents at 8am. The trade-weighted index fell to 76.50 from 76.84 yesterday.

The US dollar index, which measures the greenback against a basket of currencies, jumped to a four-week high after the Fed signalled there was sufficient strength in the broader economy as the labour market improves. The Fed confirmed it would end its asset-purchase programme, that the inflation outlook was improving and that it expected to keep interest rates low for a considerable time

"The comments were a lot more bullish than the market was anticipating," said OMF senior dealer, foreign exchange, Stuart Ive. "It's certainly a much better picture than the market was anticipating going in to that meeting. We immediately saw the US dollar rally very, very hard and subsequently the kiwi dropped about 1 percent. We are certainly on track to see continued US dollar strength on the back of those comments from the Fed."

A lower New Zealand dollar will be welcomed by New Zealand Reserve Bank governor Graeme Wheeler who releases his decision on interest rates at 9am in Wellington today.

Wheeler may say the benchmark rate will remain at 3.5 percent for a longer period of time following weaker than expected inflation last week, but will likely point to decisions being dependent on data and the global economy, said OMF's Ive.

The New Zealand dollar slipped to 89.16 Australian cents from 89.33 cents yesterday, slipped to 62.07 euro cents from 62.18 cents, edged lower to 49 British pence from 49.07 pence and declined to 85.38 yen from 85.64 yen.

BusinessDesk.co.nz

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