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NZ dollar slips as positive US economic data points to continued tapering in 2014

Friday 3rd January 2014

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The New Zealand dollar weakened after positive US economic data reinforced expectations a reviving US economy will prompt the Federal Reserve to continue to pull back its monetary stimulus this year.

The kiwi slipped to 81.99 US cents at 8am in Wellington, from 82.28 cents at 5pm yesterday.

The Fed announced last month that it would start pulling back its US$85 billion of monthly bond purchases this month as it gains confidence about a revival in the world's largest economy. Supporting that view, reports yesterday showed a gauge of US factory activity held near a 2-1/2 year high, the number of Americans filing new claims for jobless benefits fell and construction spending hit its highest in nearly five years.

"It wasn't stellar data but it just continues the trend," said Stuart Ive, senior advisor at OMF. "That broad US dollar strength is on the belief that tapering is going to continue."

A Reuters poll of economists taken in mid-December forecast annualized first-quarter US economic growth of 2.5 percent, reaching 3 percent by year-end. But since then, economic data has tended to exceed forecasts, Reuters said.

Investors will closely watch a speech by Fed Chairman Ben Bernanke later today in Philadelphia for clues about the central bank's plans for further easing of its monthly bond-buying programme. The Fed plans this month to reduce the pace of bond purchases by US$10 billion to US$75 billion.

Also on the agenda today, China releases its official PMI non-manufacturing report for December at 2pm. Traders will be eyeing the report for signs of how Asia's largest economy is tracking. The previously monthly reading was 56, with a print above 50 indicating expansion.

The New Zealand dollar is benefiting from investors selling the euro and the sterling in favour of the kiwi and the Aussie, said OMF's Ive.

The local currency advanced to 59.98 euro cents from 59.76 cents yesterday and rose to 49.98 British pence from 49.60 pence.

The kiwi weakened to 91.89 Australian cents from 92.17 cents yesterday and dropped to 85.81 yen from 86.62 yen. Japanese banks are closed today for a four-day bank holiday.

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