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NZ dollar advances as Federal Reserve likely to start modest tapering this week

Monday 16th September 2013

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The New Zealand dollar advanced as investors pare back expectations for the Federal Reserve to start tapering its monetary stimulus programme at a meeting this week.

The kiwi gained to 81.34 US cents at 8am in Wellington from 81.24 cents at the New York close and 81.15 cents at the 5pm market close in Wellington on Friday. The trade-weighted index rose to 76.45 from 76.38 on Friday.

Most currency strategists and traders expect improving US economic data will prompt the Fed to pull back its US$85 billion of monthly bond buying by a modest US$10 billion to US$15 billion following its Sept. 17-18 meeting. Still, recent weakness in some data has raised doubts about whether the Fed will delay tapering its stimulus programme on concern it may stymie a recovery.

"The whole focus of this week will be the Federal Reserve meeting," said Kevin Morgan, senior dealer at OM Financial. "It is really whether we are going to get any tapering from the Fed or if it is going to be delayed. There has been a bit of a step back with some people feeling that the recent US unemployment numbers and US retail sales were not strong enough for the Fed to actually start tapering this month. There is a massive `will they won't they' and that is the whole focus of the market this week."

The Fed's quantitative easing programme has kept US interest rates low in an attempt to boost growth in the world's largest economy. A decision on the future size of the programme is expected to be released 6:30am New Zealand time Thursday.

A large reduction in the programme will likely cause the US dollar to rally whereas a delay in tapering will cause the US dollar to weaken, potentially pushing the kiwi above 82.50 US cents, said OM Financial's Morgan.

The kiwi will probably remain strong ahead of the announcement, Morgan said.

In New Zealand today, traders will be eyeing reports on quarterly consumer confidence, services manufacturing and house prices.

The local currency was little changed at 87.75 Australian cents at 8am in Wellington from 87.72 cents at the 5pm market close on Friday, ahead of tomorrow's release of the minutes from the most recent Australian Reserve Bank meeting.

The New Zealand dollar slipped to 80.71 yen from 80.86 yen Friday after the Japanese government upgraded its assessment of the economy.

The kiwi was little changed at 61.13 euro cents from 61.11 cents on Friday. The kiwi weakened to 51.20 British pence from 51.39 pence Friday ahead of Wednesday's release of the minutes from the most recent Bank of England meeting.

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