Sharechat Logo

NZ dollar soars to 4-month high as Fed holds fire on tapering, local economy grows

Thursday 19th September 2013

Text too small?

The New Zealand dollar rose to a new four-month high as the Federal Reserve surprised markets by maintaining its bond buying programme and after local economic growth beat expectations on the strength of construction-related services.

The kiwi climbed as high as 84.12 US cents, trading at 83.92 cents at 5pm in Wellington from 83.64 cents at 8am and 82.25 cents yesterday. The trade-weighted index jumped to 77.86 from 77.01 yesterday.

High-yielding assets such as the kiwi were the prime beneficiary after Fed chairman Ben Bernanke said the US central bank wasn't going to start unwinding its US$85 billion monthly asset purchases until the world's biggest economy showed more signs of life. Investors were betting on the Fed slowing the pace of money printing by at least US$10 billion a month, which would have supported the greenback.

"The Fed not announcing any tapering caught the market wrong-footed," said Michael Johnston, senior trader at HiFX in Auckland. "Can the kiwi go higher? Yes it can."

HiFX's Johnston said the currency may find support at 83.30 US cents, and could climb as high as 85 cents until the US economy shows signs of life.

New Zealand government figures showing a stronger local economic recovery added to the kiwi's gains, as gross domestic product grew 0.2 percent in the second quarter, beating the 0.1 percent estimated in a Reuters survey. Continued growth in business services, primarily architecture and engineering, drove the gains, and offset contraction in the primary sector caused by the summer drought. Historic revisions also meant the annual pace was 2.7 percent, ahead of the 2.4 percent pace predicted.

HiFX's Johnston said the Fed's delay to tapering and the stronger economic data will make it harder for the Reserve Bank, which signalled interest rates are set to rise next year. Governor Graeme Wheeler has been reluctant to hike rates in the face of a housing bubble in Auckland and Christchurch for fear of making the kiwi dollar more attractive.

"If they start raising rates or talking about raising rates, that would create further upward pressure on the kiwi," Johnston said.

The local currency climbed to 88.42 Australian cents at 5pm in Wellington from 87.93 cents yesterday, and gained to 82.54 yen from 81.58 yen. It advanced to 62.03 euro cents from 61.57 cents, and gained to 52.03 British pence from 51.70 pence.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

NZ dollar headed for 1.3% weekly gain on expectations of a Fed rate cut
RBNZ knock-back gives Resolution chance to low-ball AMP - Jarden
Rail hubs may not boost Napier Port log trade
O'Connor looks to overhaul Biosecurity Act, improve animal tracing
Denton Morrell undefended at liquidation hearing
Contact steam to heat Norske Skog pellet business secured
Air NZ to amend booking engine after lawyer’s complaint
Ross McEwan to take helm at NAB
KPMG says bank capital proposals will wreck havoc on dairy farmers
Mild weather saps Vector's June-qtr volumes

IRG See IRG research reports