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NZ dollar holds above 70 US cents as Yellen reiterates low American rates

Tuesday 23rd February 2010

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The New Zealand dollar held above 70 US cents as San Francisco Federal Reserve President Janet Yellen reaffirmed the central bank’s stance that interest rates will remain exceptionally low.  

The greenback edged lower in the New York session amid the prospect the Fed will keep interest rates near zero after Yellen said “the economy still needs the support of extraordinarily low rates.” Fed chairman Ben Bernanke is expected to reiterate this message when he testifies before the Senate later this week. Still, investors were wary of higher yielding assets amid rumours that Germany rejected a proposal to bail-out Greece, and reports that claimed Dubai World is unlikely to pay off Nakheel’s US$980 bond.  

“It was a bit of a lacklustre night really, with nothing in the way of firm direction for currencies,” said Mike Jones, strategist at Bank of New Zealand. “The kiwi was caught between a little softer U.S. dollar and capped risk appetite.” 

The kiwi rose to 70.11 US cents from 69.99 cents yesterday, and was little changed at 65.03 on the trade-weighted index, or TWI, a measure of the currency against a basket of five trading partners, from 65.01. It slipped to 63.92 yen from 64.08 yen yesterday, and declined to 77.84 Australian cents from 77.91 cents. It edged up to 51.55 euro cents from 51.47 cents yesterday, and was little changed at 45.30 pence from 45.27 pence.  

Jones said the currency may trade between 69.90 US cents and 70.30 cents today with little in the way of data to give it direction.  

The kiwi is likely to continue its decline against its trans-Tasman counterpart, with investors waiting for Reserve Bank of Australia Deputy Governor Ric Battellino delivering a speech entitled “Mining Booms and the Australian Economy” this evening.

Battellino is known for talking up the economy, and his bullish assessment of the so-called ‘lucky country’ may add weight to traders supporting the Australian dollar ahead of next month’s rate review.  

Jones said the market is pricing in a 40% chance of a further rate hike by the RBA, “which seems a little under-priced.” 

The RBA was the first G-20 nation to begin hiking interest rates after Australia avoided a recession amid strong demand for raw materials in China.

New Zealand’s central bank has yet to embark on tightening monetary policy, and investors expect Governor Alan Bollard to stick to his word and begin removing stimulus in the middle of the year.  

 

 

Businesswire.co.nz



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