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NZ dollar falls as Fed stimulus expectations wane

Monday 20th August 2012

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The New Zealand dollar fell after signs of life in the US economy sapped expectations for more monetary stimulus and as investors struggled to decipher clues about Europe's plans to tackle its debt-crisis.

The New Zealand dollar fell to 80.65 US cents at 8am from 80.72 cents at the close of trading in New York on Friday and 80.91 from 5pm on Friday. The kiwi decreased to 65.31 euro cents from 65.35 cents at the close of New York trading and 65.55 cents on Friday. The trade weighted index declined to 72.89 from 72.99.

Upbeat consumer confidence on Friday added to the string of better-than-expected US data, which has eroded speculation the Federal Reserve will increase its monetary stimulus. Investors are preparing for the latest minutes from the Federal Open Market Committee meeting on Wednesday. Traders are reluctant to change their bets before the Fed's next summit in Jackson Hole, Wyoming at the end of August.

"Any change in QE3 will be reflected in the kiwi/US cross," said Stuart Ive, currency strategist at HiFX. "Data out of the US on Friday indicated that it may be turning to the positive side reducing the expectation of QE3."

The euro extend gains on optimism policymakers are closer to finding a solution for the debt crisis, even as German Finance Minister Wolfgang Schaeuble ruled out another aid programme for Greece. German, Greek and French policymakers are all set to meet later this week.

"There is a definite Euro-wide decision to make to this thing succeed," Ive said. "They just have to decide on a line of thought."

Ive said the New Zealand dollar is likely to trade in a range of between 80.30 US cents to 81.40 cents finishing the week higher on "the basis that we see positive overtones coming out from the Europeans."

In New Zealand, the BNZ-Business NZ Performance of Services Index for July will be released this morning. The series' sister survey, the manufacturing index, slipped into contraction in July, falling to its lowest level in three-months.

The New Zealand dollar was little changed at 77.37 Australian cents from 77.33 cents at the close of trading in New York. The kiwi was largely unchanged at 51.38 British pence from 51.35 pence. It relatively unchanged at 64.19 yen from 64.12.

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