NZ dollar gains to six-week high as dovish Fed, global liquidity lift commodities, asset prices

Friday 9th October 2015

The New Zealand dollar rose to the highest level in more than six weeks after minutes of the last Federal Reserve meeting suggested its policymakers were more inclined to hold off raising interest rates and may not move as far in reversing from an extended period of quantitative easing.

The kiwi jumped to 66.61 US cents at 8am in Wellington, from 66.05 cents late yesterday. The trade-weighted index rose to 71.60 from 71.04.

The Federal Open Market Committee minutes show that policymakers deemed the US economy almost in good enough shape to warrant hiking rates last month but chose to hold off pending more evidence of a return to normality and an assessment of the state of the global economy. Across the Atlantic, the Bank of England indicated it could delay raising rates until there were clear signs inflation was accelerating, while the European Central Bank indicated it would continue to provide as much quantitative easing as was required to stimulate the regional economy.

The FOMC "did have a dovish tone" as have Fed speakers on the whole, said Sam Tuck, senior strategist at ANZ Bank New Zealand. "That solidified in people's minds that they can dial back on quantitative tightening" - the opposite of quantitative easing.

Traders expect, though, that global market liquidity "will remain ample for a very long time," especially as countries such as China spends their foreign reserves, he said. "That's supporting asset prices - oil, commodities, equity markets."

The Thomson Reuters/Core Commodity CRB commodity index gained 0.9 percent overnight. Brent crude rose 3.7 percent to US$53.21 a barrel. The US dollar index, which tracks the greenback against a basket of currencies, was at 95.308, from 95.479 yesterday. It earlier fell as low as 94.984.

The kiwi rose to 4.2361 Chinese yuan from 4.1819 yuan late yesterday and was little changed at 91.81 Australian cents. It rose to 79.97 yen from 78.96 yen and gained to 59.13 euro cents from 58.52 cents. The kiwi rose to 43.41 British pence from 43.02 pence.

BusinessDesk.co.nz

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