NZ dollar falls before RBNZ statement as Fed keeps rates unchanged, drops reference to global risks

Thursday 28th April 2016

The New Zealand dollar fell as the Federal Reserve kept US interest rates unchanged and dropped a reference to global risks, suggesting it still intends to hike while the Reserve Bank is more inclined to cut borrowing costs.

The kiwi fell to 68.38 US cents as at 7:30am in Wellington, from 68.81 cents late yesterday. The trade-weighted index fell to 72.41 from 72.67.

The Federal Open Market Committee kept the target range for its overnight lending rate at 0.25 percent to 0.5 percent, as expected, noting an improvement in the US labour market and saying it remained confident inflation would rise to its 2 percent target over the medium term.

It dropped a reference from its previous statement about global economic and financial risks but added it was closely monitoring offshore developments. Locally, traders are now focussed on the Reserve Bank's statement at 9am, with the market expecting the bank to keep the official cash rate at 2.25 percent now and cut in June.

"Overall, there were subtle changes here and there to the Fed’s statement, but nothing really to change the policy outlook – the next move being data dependent," said Jason Wong, currency strategist at Bank of New Zealand.

In New Zealand, the market had been confused by recent Reserve Bank communications, he said. "The policy of a cut or on-hold decision could easily go either way" and market reaction was likely whatever the outcome. BNZ is calling for a rate cut this morning.

The kiwi rose to 90.30 Australian cents, having gained yesterday after weak Australian inflation revived talk of a rate cut across the Tasman, from 90.12 cents late yesterday.

The New Zealand dollar slipped to 47.07 British pence from 47.16 pence and dropped to 60.48 euro cents from 60.83 cents. The local currency fell to 76.27 yen from 76.37 yen and slipped to 4.4399 yuan from 4.4628 yuan.

BusinessDesk.co.nz

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