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NZ dollar climbs to new 29-month high as Fed prints US$600 billion

Thursday 4th November 2010

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The New Zealand dollar climbed to a fresh 29-month high after the Federal Reserve embarked on its second round of quantitative easing, and will print US$600 billion in a bid to resuscitate the US economy.  

The Fed said it will print US$75 billion a month for eight months as it looks to buy long-term Treasury bonds in an effort to reduce persistently high unemployment and low underlying inflation. The Federal Open Market Committee said it will “adjust the program as needed” and will use “all policy tools necessary” to ensure the recovery perks up. That comes ahead of local employment data which is expected to show the jobless rate fell 0.1 percentage points to 6.7% in the third quarter.

“The overriding thing is that the US dollar will remain on the back foot, and if the market pushes too far, we get some intervention,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “Unless the kiwi breaks back through 76.10 US cents it will stay in an uptrend.”

The kiwi climbed to 77.83 US cents from 77.17 cents yesterday and advanced to 68.46 on the trade-weighted index of major trading partners’ currencies from 68.08. It rose to 63.25 yen from 62.25 yen yesterday, and gained to 77.63 Australian cents from 77.39 cents. It was unchanged at 55.12 euro cents and increased to 48.33 pence from 48.19 pence yesterday.

Kelleher said the currency may trade between 77.25 US cents and 78.10 cents today as the market digests the impact of the Fed’s QE2, with the household labour force survey the major piece of local news.

The Fed’s statement came as the Republican Party swept the House of Representatives in the US, prompting President Barack Obama to say he’s “willing to compromise” to secure legislation.

That comes ahead of US non-farm payrolls data on Friday, which is expected to show America’s economy created 60,000 new jobs last month. The ADP survey of private sector payrolls rose by a more-than-expected 43,000.

Central banks in Europe, Britain and Japan will review their own monetary policies tomorrow.

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