NZ dollar slips this week as Fed keeps holding fire

Friday 1st November 2013

The New Zealand dollar edged lower this week after the Federal Reserve kept its money printing programme intact, while the local Reserve Bank warned any future rate hikes may be delayed next year by sustained strength in the currency.

The kiwi traded at 82.64 US cents at 5pm in Wellington from 82.78 cents at the start of the week, and was little changed from 82.62 cents at 8am and 82.49 cents yesterday. The trade-weighted index rose to 76.63 from 76.33 yesterday, a little stronger from last week's close at 76.40.

The Dollar Index, a measure of the greenback against a basket of currencies, rose 1.4 percent this week to 80.31 at 5pm in Wellington in a week when the Fed kept its US$85 billion monthly asset purchase programme unchanged, while giving a more upbeat assessment for the world's biggest economy. US manufacturing figures due to be released on Friday in Washington may also give investors more confidence despite recent job growth figures.

"We thought the US dollar was over-sold a bit and that seems to be the dominant theme," said Chris Tennent-Brown, FX economist at Commonwealth Bank of Australia in Sydney. "If the US economy is on the up, then the US dollar should be in a multi-year upstream."

New Zealand's Reserve Bank governor Graeme Wheeler left the local currency marking time yesterday when he kept the official cash rate at 2.5 percent, saying sustained strength in the kiwi would give him "greater flexibility" over the timing and pace of next year's rate hikes.

Still, traders haven't bought into the warning, and are still pricing in 80 basis points of increases over the coming year, according to the Overnight Index Swap curve.

CBA's Tennent-Brown said the kiwi has found good support at 82.50 US cents, which is the middle of its range over the past month or two.

Better than expected manufacturing data out of China helped support risk-sensitive assets including the kiwi after concerns about the banking system eroded investor confidence in the world's second biggest economy last week. In the background is the Communist Party's meeting which kicks off on Nov. 9, where major policy reforms are likely to be unveiled.

The New Zealand dollar increased to 87.14 Australian cents from 86.87 cents yesterday and fell to 80.89 yen from 81.25 yen. It gained to 60.96 euro cents at 5pm in Wellington from 60.18 cents yesterday, and was little changed at 51.54 British pence from 51.50 pence.

BusinessDesk.co.nz

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