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NZ dollar rises on speculation Fed will embark on QE3 after weak jobs data

Tuesday 10th April 2012

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The New Zealand dollar rose on speculation the Federal Reserve may introduce a third round of asset purchases after a report showed US employers added fewer jobs than expected last month.

The New Zealand dollar rose to 82.27 US cents at 8am from 81.63 at the close of trading in New York on Friday. The trade weighted index increased to 73.55 from 73.13.

The Dollar Index, a measure of the greenback against a basket of currencies, fell 0.4 percent to 79.77after a US Labor Department report revived speculation the Fed will embark on another round of quantitative easing. US non-farm payrolls increased by 120,000 in March, according to government figures. That’s short of the 205,000 forecast by economists in a Bloomberg survey, and the smallest gain in five months.

“The New Zealand dollar’s gains have been sparked by the non-farms data,” said Stuart Ive, currency strategist at HiFX. “The data led to the market being bearish on world growth and more people focusing on what (US Fed chairman Ben) Bernanke has been talking about for the last two months, that employment is still a great concern for the US economy.”

In January the Fed pledged to keep the Federal Funds Rate between zero and 0.25 percent until the end of 2014, saying it will hold off increasing monetary accommodation unless US economic expansion falters or prices rise at a slower rate than expected.

“If these conditions continue this will lead to the Fed stepping up into play,” Ive said.

The central bank bought US$2.3 trillion of assets to support the economy in two rounds of quantitative easing from December 2008 to June. It is now replacing shorter maturities in its holdings with longer-term debt to cap borrowing costs without expanding its balance sheet in a programme called ‘Operation Twist’.

In China, New Zealand’s second largest export market, consumer price inflation accelerated 3.6 percent in March from a year earlier, according to the National Bureau of Statistics. That was more than the median 3.4 percent estimate in a Bloomberg News survey of 33 economists.

China’s trade balance is set for release for today, followed by gross domestic product on Friday.

New Zealand’s dwelling and household estimates for the March quarter are scheduled for release this morning.

The New Zealand dollar rose to 79.62 Australian cents from 79.16 cents at the close of trading in New York. The kiwi gained to 62.64 euro cents from 62.27 cents last week and advanced to 51.69 British pence from 51.46 pence. It increased to 67.06 yen from 66.50 yen last week.


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