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Kiwi dollar falls below 70 US cents as Fed signals early exit

Friday 19th February 2010

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The New Zealand dollar fell below 70 US cents after the Federal Reserve hiked the discount rate charged to banks for direct loans, in a sign American regulators are moving toward winding down stimulus measures.  

The kiwi dropped to 69.71 US cents from 70.27 cents before the announcement as the discount rate was lifted 25 basis points to 0.75%, the first increase in three years. The Dollar Index, a measure of the greenback against a basket of six currencies, climbed 0.8% to 81.05, the highest level since June.  

“It points to the exit door quite explicitly – it’s quite a powerful message,” said Imre Speizer, markets strategist at Westpac Banking Corp. “It puts the dampener on risk markets and we’d expect (US) equities to get hammered tonight” which will see the kiwi under further pressure, he said.  

Investors were bullish on the prospects for the trans-Tasman currencies this morning with Reserve Bank of Australia Governor Glenn Stevens expected to give an upbeat assessment of Australia’s economy when he testifies before Parliament today.

The Australian dollar dropped 1.1% to 89.17 US cents.  Support for the US dollar has grown this year as investors grow sceptical over the recovery of the Euro-zone region, amid ongoing sovereign debt issues in the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain). 

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