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Kiwi edges up after Fed keeps quantitative easing unchanged

Wednesday 11th August 2010

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The New Zealand dollar edged up after the Federal Reserve kept its stimulus policy unchanged amid speculation the central bank would ramp up its quantitative easing.  

The Federal Open Market Committee kept the Federal Funds rate in a band of between zero and 0.25%, and agreed to switch some of its maturing mortgage-backed securities into long-term Treasuries. Though that will stop its quantitative easing programme from contracting, it fell short of the rumoured expansion.

Stocks on Wall Street and in Europe fell, carrying on the downbeat tone from Chinese equities after the world’s third biggest economy’s trade balance disappointed investors.  

“People looking for the Fed to pump things up would be a little disappointed,” said Tim Kelleher, vice president of institutional banking and markets at Commonwealth Bank of Australia.

The kiwi dollar will probably consolidate today, but “the New Zealand economy is pretty heavy and I wouldn’t be jumping into New Zealand with yields at 3%,” he said.  

The kiwi rose to 72.38 US cents from 72.24 cents yesterday after it fell as low as 71.94 cents.

The currency was little changed at 66.77 on the trade-weighted index of major trading partners’ currencies form 66.78 yesterday, and slipped to 79.23 Australian cents from 79.29 cents. It fell to 61.79 yen from 62.02 yen yesterday, and was little changed at 54.90 euro cents from 54.88 cents. It dropped to 45.63 pence from 45.80 pence yesterday.  

Kelleher said the currency may trade between 72.20 US cents and 72.70 cents today, and can expect more of the same unless the greenback rallies.  

Chinese industrial production and consumer spending data is expected to show the Asian nation’s economy is still humming along. The trade data yesterday showed import growth was less than expected at 23%.  

The Bank of Japan kept its benchmark interest rate on hold at 0.1% yesterday, and held off making any noises about the strength in the yen. Earlier this week, Japan’s Finance Minister Yoshihiko Noda signalled he wanted the central bank to do more to curb the yen’s appreciation.

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