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NZ dollar reaches new 9-mth high as Fed extend QE

Thursday 13th December 2012

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The New Zealand dollar rose to a new 9-month high after the Federal Reserve extended its quantitative easing programme and tied the end of record low interest rates to a targeted drop in unemployment.

The kiwi dollar rose to 84.51 US cents from 83.90 cents at 5pm yesterday, the highest since it reached 84.71 cents on Feb. 29. The trade-weighted index rose to 75.30 from 74.91.

The Fed will buy Treasuries outright at a rate of US$45 billion a month, alongside US$40 billion a month of mortgage-backed securities, according to a Fed statement following a two-day meeting of policy makers. It will keep the target range for the federal funds rate at zero to 0.25 percent as long as the unemployment rate remains above 6.5 percent and inflation "between one and two years ahead is projected to be no more than" 2.5 percent. The US jobless rate is now 7.9 percent.

"What has really got the market going is the thresholds for the lower rate commitment," said Imre Speizer, strategist at Westpac Banking Corp. If the jobless rate is slow to come down, rates would stay low for longer than the market expected.

Speizer said the kiwi is now looking "over-bought" and may retrace back to 83 US cents in coming weeks before climbing back up above 84.70 cents, and "head towards a record high sometime in the first half of next year."

Stocks rallied on Wall Street after the fed's announcement that it will print more money. The Standard & Poor's 500 Index rose 0.6 percent.

The kiwi dollar rose to 79.88 Australian cents from 79.69 cents yesterday and climbed to 70.29 yen from 69.32 yen. It was at 64.54 euro cents from 64.50 cents and rose to 52.24 British pence from 52.07 pence.

BusinessDesk.co.nz

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