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NZ dollar falls amid uncertainty over quantitative easing and The Hobbit

Wednesday 27th October 2010

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The New Zealand dollar fell amid heightened uncertainty over the size of the Federal Reserve’s second round of asset purchases next week.  

The Dollar Index, a measure of the greenback against a basket of currencies, gained 0.8% to 77.73 as traders pared back some of their bets around the Fed’s next quantitative easing programme amid upbeat consumer confidence data. New York Fed President William Dudley indicated he was undecided on whether to support what has been dubbed QE2, while Kansas City Fed President Thomas Hoenig reiterated his opposition to the programme. That comes as the New Zealand government tries to win over Warner Bros. executives with a package to ensure the US$500 million The Hobbit film production doesn’t go to a cheaper destination.

“QE2 has to be more shocking than the market expects to get it going” and will probably disappoint, said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia. “The kiwi might hold up if we get good news on the Hobbit.”

The kiwi fell to 74.85 U.S. cents from 75.18 cents yesterday, and was little changed at 66.57 on the trade-weighted index of major trading partners’ currencies from 66.56. It rose to 61 yen from 60.73 yen yesterday, and gained to 76.05 Australian cents from 75.89 cents. It increased to 54.04 euro cents from 53.90 cents yesterday, and declined to 47.28 pence from 47.64 pence.

Kelleher said the currency may trade between 74.60 U.S. cents and 75.10 cents today with Australian inflation data the major event risk on the day. Economists predict Australia’s inflation accelerated 0.8% in the third-quarter amid rising expectations the Reserve Bank of Australia will hike its target cash rate next week.

The National Bank Business Outlook will probably show companies’ confidence held up this month after September’s earthquake in Christchurch and snowstorms in the South Island, while Finance Minister Bill English will appear before Parliament’s Finance and Expenditure Committee to report on the government’s financial statements and Treasury annual report.

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